NWG plc Q1 2021 Interim Management Statement

RNS Number : 9891W
NatWest Group plc
29 April 2021
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q1 2021

Interim Management Statement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  natwestgroup.com

 

 

 

 



 


NatWest Group plc

Q1 2021 Interim Management Statement

 

Alison Rose, Chief Executive Officer, commented:

 

"NatWest Group's profit in the first quarter of 2021 is a result of a good operating performance in our core franchises as well as modest impairment releases that reflect the better than expected performance of our loan book across the first three months of the year.

 

We continue to make progress against our strategic targets; growing in key areas, simplifying the bank and accelerating our digital transformation to meet the rapidly evolving needs of our customers. We are also pleased that we were able to use some of our excess capital to buy back shares from the UK Government.

 

Defaults remain low as a result of the UK Government support schemes and there are reasons for optimism with the vaccine programmes progressing at pace and restrictions being eased. However, there is continuing uncertainty for our economy and for many of our customers as a result of COVID-19. Our capital strength and well-diversified balance sheet means NatWest Group is well positioned to help people, families and businesses to rebuild and thrive.

 

We are building a relationship bank for a digital world. A bank that champions potential and plays a positive role in society in order to build long-term value and drive sustainable returns for our shareholders."

 

Good financial performance in a challenging environment with better than expected performance of the loan portfolio

●

Q1 2021 operating profit before tax of £946 million and an attributable profit of £620 million.

●

Income across the UK and RBSI retail and commercial businesses, excluding notable items, decreased by £203 million, or 8.0%, compared with Q1 2020 reflecting the lower yield curve, subdued transactional business activity and lower consumer spending, partially offset by balance sheet growth. 

●

Bank net interest margin (NIM) of 1.64% was 2 basis points lower than Q4 2020 principally reflecting lower structural hedge income, 3 basis points, partly offset by mortgage margin improvement, 1 basis point.

●

Other expenses, excluding operating lease depreciation (OLD) and Ulster Bank RoI direct costs, were £72 million, or 4.5%, lower than Q1 2020.

●

A net impairment release of £102 million in Q1 2021 reflects releases in non-default portfolios, principally in Commercial Banking.

 

Robust balance sheet with strong capital and liquidity levels

 

●

CET1 ratio of 18.2% was 30 basis points lower than Q4 2020, reflecting the directed buy back, associated pension contribution, and foreseeable dividend accrual partially offset by the reduction in RWAs and the attributable profit for the period. 

●

The liquidity coverage ratio (LCR) of 158%, representing £64.9 billion above 100%, decreased by 7 percentage points compared with Q4 2020, following a repayment of the Term Funding Scheme with additional incentives for SMEs (TFSME).

●

Net lending decreased by £1.8 billion to £358.7 billion in comparison to Q4 2020. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes, increased by £2.2 billion, or 3.0% on an annualised basis, including £3.4 billion related to mortgages. Retail Banking gross new mortgage lending was £9.6 billion in the quarter.

●

Customer deposits increased by £21.6 billion compared with Q4 2020 to £453.3 billon. Across the UK and RBSI retail and commercial businesses customer deposits increased by £12.1 billion, or 3.0%, as customers sought to retain liquidity and reduced spending. T reasury repo activity drove a further £10.9 billion increase in the quarter.

●

RWAs decreased by £5.6 billion compared with Q4 2020 mainly reflecting reductions in Retail Banking and Commercial Banking.

 

Outlook(1)

We retain the outlook guidance provided in the 2020 Annual Results document.

 

 

 

 

 

 

 

Note:

(1)  The guidance, targets, expectations and trends discussed in this section represent NatWest Group plc management's current expectations and are subject to change, including as a result of the factors described in the NatWest Group plc "Risk Factors" section  on pages 345 to 362 of the 2020 Annual Report and Accounts and on pages 156 to 172 of the NatWest Markets Group Plc 2020 Annual Report and Accounts. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.



 

Our purpose in action

We champion potential, helping people, families and businesses to thrive. By working to benefit our customers, colleagues and communities, we will deliver long-term value and drive sustainable returns to our shareholders. Some key achievements in Q1 2021 include:

 

People and families

●

NatWest Group is participating in the new mortgage guarantee scheme, which provides a UK Government guarantee to lenders on mortgages with just a 5% deposit and will help many customers for whom home ownership has felt far out of reach .

●

As part of our Digital Regular Saver, launched in 2020, we recently announced a £10,000 prize draw that will provide further incentive to our customers to start and continue saving, helping them build financial security.

●

Our Personal Portfolio Funds - available through NatWest Invest, Royal Bank Invest and Coutts Invest - support customers to invest in their futures. Less than five years since their launch, Assets under Management have exceeded £1 billion, with 30% growth in Q1 2021.

●

We teamed up with the creators of 'No Really, I'm Fine' - a mental health podcast - to bring listeners the 'Mind Over Money' podcast tackling the issue of financial wellbeing, with practical tips to avoid scams, manage spending habits and deal with a financial crisis.

 

Businesses

●

In response to our SME Recovery Report, NatWest Group announced a £6 billion funding commitment to support SMEs to scale and grow, with £4 billion allocated outside London. We also formed new strategic partnerships with Business in The Community (BITC), Hatch and Digital Boost, to empower underrepresented entrepreneurs and communities to embed new skills and technology.

●

Commercial Banking is playing a key role in helping customers recover and grow, through Pay As You Grow for existing Bounce Back Loans and supporting access to finance through the new Recovery Loan Scheme.

●

Coutts has partnered with the Business Growth Fund to develop the UK Enterprise Fund. This fund will co-invest equity growth capital, taking minority stakes in businesses looking to scale in the UK, with a focus on investing in female and diverse entrepreneurs.

●

NatWest Group has joined forces with Microsoft to help UK businesses better understand their carbon footprint and create tailored action plans to reduce their carbon emissions, leveraging digital technologies.

 

Colleagues

●

In our sixth year as headline sponsor of National Careers Week, we announced the creation of 240 social mobility apprenticeships across contact centre, digital, technology and innovation skills. The new roles will support young people facing barriers in their early career, giving them the tools and support they need to succeed. 

●

In response to the pandemic's significant impact on young people, in partnership with the Bank Workers Charity, we have launched a free online counselling and wellbeing support service - Kooth - for the dependants of current and former colleagues in the UK, aged 11-18 years old.

●

In Q1 2021, we launched the Chartered Banker Institute Enterprise Membership to our colleagues, providing access to award winning professional content, toolkits and development material, one of the many ways we are supporting our colleagues to be the best they can be.

 

Communities

 

●

One of our Edinburgh offices has been transformed into a mass vaccination centre, at no cost to the NHS. The centre is running 12 hours a day, seven days a week and is currently capable of providing 480 appointments every day. 

●

In Q1 2021, NatWest Group issued a €1 billion affordable housing social bond, the first of its kind by a UK bank. The proceeds will support lending to not-for-profit, UK housing associations as part of our commitment to provide £3 billion of funding to the UK's affordable housing sector by the end of 2022.

●

NatWest Group launched an innovative offering with Octopus Energy to help people and businesses switch to electric vehicles. It provides tailored advice, charging infrastructure funding solutions and access to some of the latest renewable technologies.

●

NatWest Group was recently announced as a corporate patron of the National Emergencies Trust (NET).  Alongside the NET's other patrons, we'll play an active role in shaping the response to future emergencies, having helped to raise £10 million for the NET Coronavirus Appeal in 2020.

 



 


Business performance summary

 



Quarter ended





31 March

31 December

31 March





2021

2020

2020

Total income




£2,659m

£2,535m

£3,162m

Operating expenses




(£1,815m)

(£2,341m)

(£1,841m)

Profit before impairment releases/(losses)




£844m

£194m

£1,321m

Operating profit before tax




£946m

£64m

£519m

Profit/(loss) attributable to ordinary shareholders




£620m

(£109m)

£288m








Excluding notable items within total income (1)







Total income excluding notable items




£2,673m

£2,616m

£3,047m

Operating expenses




(£1,815m)

(£2,341m)

(£1,841m)

Profit before impairment releases/(losses) and excluding notable items



£858m

£275m

£1,206m

Operating profit before tax and excluding notable items




£960m

£145m

£404m








Performance key metrics and ratios







Bank net interest margin (NatWest Group NIM excluding NWM)  (2)



1.64%

1.66%

1.89%

Bank average interest earning assets (NatWest Group excluding NWM) (2)



£480bn

£473bn

£422bn

Cost:income ratio (2)




67.8%

92.2%

57.7%

Loan impairment rate  (2)




(11bps)

14bps

90bps

Earnings per share - basic




5.1p

 (0.9p)

2.4p

Return on tangible equity (2)




7.9%

(1.4%)

3.6%

 


31 March

31 December

31 March


2021

2020

2020

Balance sheet




Total assets

£769.8bn

£799.5bn

£817.6bn

Funded assets  (2)

£646.8bn

£633.0bn

£608.9bn

Loans to customers - amortised cost

£358.7bn

£360.5bn

£351.3bn

Loans to customers and banks - amortised cost and FVOCI (3)

£371.0bn

£372.4bn

£364.0bn

Impairment provisions - amortised cost

£5.6bn

£6.0bn

£4.2bn

Total impairment provisions (3)

£5.8bn

£6.2bn

£4.3bn

Expected credit loss (ECL) coverage ratio (3)

1.56%

1.66%

1.19%

Assets under management and administration (AUMA) (2)

£32.6bn

£32.1bn

£26.7bn

Customer deposits

£453.3bn

£431.7bn

£384.8bn





Liquidity and funding




Liquidity coverage ratio (LCR)

158%

165%

152%

Liquidity portfolio

£263bn

£262bn

£201bn

Net stable funding ratio (NSFR) (4)

153%

151%

138%

Loan:deposit ratio  (2)

79%

84%

91%

Total wholesale funding

£61bn

£71bn

£86bn

Short-term wholesale funding

£20bn

£19bn

£32bn





Capital and leverage




Common Equity Tier (CET1) ratio (5)

18.2%

18.5%

16.6%

Total capital ratio

24.0%

24.5%

21.4%

Pro forma CET1 ratio, pre dividend accrual (6)

18.6%

18.8%

16.6%

Risk-weighted assets (RWAs)

£164.7bn

£170.3bn

£185.2bn

CRR leverage ratio (5)

5.0%

5.2%

5.1%

UK leverage ratio

6.2%

6.4%

5.8%

Tangible net asset value (TNAV) per ordinary share

261p

261p

273p

Number of ordinary shares in issue (millions) (7)

11,560

12,129

12,094

 

Notes:

(1)

Refer to page 5 for details of notable items within total income.

(2)

Refer to the Appendix for details of the basis of preparation and reconciliation of non-financial and performance measures.

(3)

Refer to page 15 for further details. 31 March 2020 has been restated for the accounting policy change for balances held with central banks. Refer to Accounting policy changes effective 1 January 2020 on page 264 in the NatWest Group plc 2020 Annual Report and Accounts for further details.

(4)

NSFR reported in line with CRR2 regulations finalised in June 2019.

(5)

Based on CRR end point including the IFRS 9 transitional adjustment of £1.7 billion. Excluding this adjustment, the CET1 ratio would be 17.2% and the CRR leverage ratio would be 4.7%.

(6)

The pro forma CET1 ratio at 31 March 2021 excludes foreseeable charges of £547 million for ordinary dividend including £200 million (11bps) in Q1 2021 (31 December 2020 excludes foreseeable charges of £364 million for ordinary dividend (3p per share) and £266 million pension contribution). At 31 March 2020 there was no charge in CET1 for foreseeable dividends or charges.

(7)

In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI). NatWest Group cancelled 391 million of the purchased ordinary shares, and held the remaining 200 million in own shares held. The number of ordinary shares in issue excludes own shares held.

 

Non-IFRS financial measures

This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations, where applicable, refer to the Appendix.



 

Business performance summary

Chief Financial Officer review


In the first quarter of 2021 we have continued to make progress against our strategic objectives and have delivered a good financial performance. We continue to support our customers through this period of uncertainty and expect to grow lending, excluding UK Government financial support schemes, in our UK and RBSI retail and commercial businesses above the market rate in 2021, whilst reducing costs by around 4%. The Q1 2021 results include a small impairment release, as support schemes continue to mitigate realised levels of default. Finally, our capital and liquidity positions remain robust.

 

Financial performance

Total income decreased by £503 million, or 15.9%, compared with Q1 2020. Excluding notable items, income decreased by £374 million, or 12.3%, due to the lower yield curve, subdued transactional business activity and a more normalised level of customer activity in NatWest Markets, partially offset by balance sheet growth. Bank NIM of 1.64% decreased by 2 basis points compared with Q4 2020 as lower structural hedge income, 3 basis points, was partly offset by mortgage margin improvement, 1 basis point.


We achieved a cost reduction of £72 million, or 4.5%, compared with Q1 2020 mainly reflecting actions taken in NatWest Markets in line with the strategic announcement made in February 2020 and other actions across Retail Banking and Commercial Banking. Headcount was 5.7% lower than Q1 2020. Strategic costs in the quarter of £160 million included £53 million redundancy charges, £24 million related to property charges and a £14 million charge related to technology spend.


Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of £102 million in the quarter reflects releases in non-default portfolios, principally in Commercial Banking, as support schemes continue to mitigate realised levels of default. Total impairment provisions decreased by £0.4 billion to £5.8 billion in the quarter, which resulted in a reduction in the ECL coverage ratio from 1.66% at Q4 2020 to 1.56%.


As a result, we are pleased to report an attributable profit of £620 million, with earnings per share of 5.1 pence and a return on tangible equity (RoTE) of 7.9%. 

We continued to support our customers during this period of uncertainty, whilst taking a measured approach to risk. Across the UK and RBSI retail and commercial businesses, net lending excluding UK Government support schemes increased by £2.2 billion, or 3.0% on an annualised basis, including £3.4 billion of mortgage growth partially offset by lower unsecured balances and a reduction in SME & mid corporate lending.


Customer deposits increased by £21.6 billion, or 5.0%, to £453.3 billon in the quarter. Across the UK and RBSI retail and commercial businesses customer deposits increased by £12.1 billion, or 3.0%, as customers sought to retain liquidity and reduced spending. Treasury repo activity drove a further £10.9 billion increase in the quarter.

 

 

Capital and leverage

Following the successful directed buy back in March 2021, the CET1 ratio remains robust at 18.2%, or 17.2% excluding IFRS 9 transitional relief. The 30 basis points reduction in the quarter reflected the directed buy back, and associated pension contribution, 72 basis points, and foreseeable dividend accrual, 11 basis points, partially offset by the reduction in RWAs and the attributable profit for the period. The total capital ratio decreased by 50 basis points in the quarter to 24.0%.


RWAs of £164.7 billion decreased by £5.6 billion, or 3.3%, in the quarter reflecting business movements, including lower unsecured lending, of £2.5 billion, risk parameter improvements of £1.0 billion, Commercial Banking capital management activity and FX movements of £1.3 billion.

 

TNAV per share was in line with Q4 2020 at 261 pence as the attributable profit and directed buy back were offset by movements in FX reserves, cash flow hedging reserves and the dividend linked pension contribution.

 

The UK leverage ratio of 6.2% decreased by 20 basis points in the quarter.

 

Funding and liquidity

The liquidity portfolio was £263 billion at the end of Q1 2021, broadly stable with Q4 2020, and the LCR decreased by 7 percentage points to 158%, representing £64.9 billion headroom above 100%, reflecting the £5.0 billion TFSME repayment in January 2021, the redemption of own debt, directed buy back and other balance sheet movements, partially offset by the 3.0% increase in customer deposits. The loan:deposit ratio reduced by 5 percentage points in the quarter to 79%.

 

Total wholesale funding decreased by £10 billion compared with Q4 2020. Short term wholesale funding increased by £1.0 billion in the quarter to £20 billion.



 

Summary consolidated income statement for the period ended 31 March 2021

 




Quarter ended





31 March

31 December

31 March





2021

2020

2020





£m 

£m 

£m 

Net interest income




1,931

1,971

1,942

Own credit adjustments




2

(43)

155

Other non-interest income




726

607

1,065

Non-interest income




728

564

1,220

Total income




2,659

2,535

3,162

Litigation and conduct costs




(16)

(194)

4

Strategic costs




(160)

(326)

(131)

Other expenses




(1,639)

(1,821)

(1,714)

Operating expenses




(1,815)

(2,341)

(1,841)

Profit before impairment releases/(losses)




844

194

1,321

Impairment releases/(losses)




102

(130)

(802)

Operating profit before tax




946

64

519

Tax charge




(233)

(84)

(188)

Profit/(loss) for the period




713

(20)

331








Attributable to:







Ordinary shareholders




620

(109)

288

Preference shareholders




5

5

8

Paid-in equity holders




87

83

97

Non-controlling interests




1

1

(62)

 

Notable items within total income







Own credit adjustments (OCA)




2

(43)

155

FX recycling loss in Central items & other




-

(1)

(64)

Liquidity Asset Bond sale gain




-

2

93

IFRS volatility in Central items & other (1)




(1)

45

(66)

Loss on redemption of own debt




(118)

-

-

Retail Banking debt sale gain




-

1

-

Metro Bank mortgage portfolio acquisition loss




-

(58)

-

Commercial Banking fair value and disposal loss




(14)

(27)

(19)

NatWest Markets asset disposals/strategic risk reduction (2)



(4)

(8)

-

Share of gains under equity accounting for Business Growth Fund



121

8

16

Total




(14)

(81)

115

 

Notes:

(1)  IFRS volatility relates to derivatives used for risk management not in IFRS hedge accounting relationships and IFRS hedge ineffectiveness.

(2)  Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020.

 

 

 

Business performance summary

Retail Banking




Quarter ended






31 March

31 December

31 March






2021

2020

2020






£m

£m

£m

Total income





1,056

974

1,150

Operating expenses





(587)

(818)

(529)

  of which: Other expenses





(557)

(566)

(592)

Impairment losses





(34)

(65)

(297)

Operating profit





435

91

324

Return on equity





23.0%

3.8%

15.5%

Net interest margin





2.06%

2.03%

2.28%

Cost:income ratio





55.6%

84.0%

46.0%

Loan impairment rate





8bps

15bps

72bps

 




As at






31 March

31 December






2021

2020






£bn

£bn

Net loans to customers - amortised cost





174.8

172.3

Customer deposits





179.1

171.8

RWAs





35.0

36.7

 

 

During Q1 2021, Retail Banking continued to pursue sustainable growth with an intelligent approach to risk. Lending growth in the quarter was supported by a strong performance in mortgages, with gross new mortgage lending of £9.6 billion in the quarter, partially offset by the continued UK Government restrictions impacting customer spending and resulting in higher repayments of unsecured balances.


●

Retail Banking continues to support customers whose income has been impacted by COVID-19. As at 31 March 2021, Retail Banking had c.12,000 active mortgage repayment holidays, representing around 1% of the book by volume, and approximately 16,000, or 2%, of personal loan customers on active repayment holidays at the end of Q1 2021.

●

Total income was £94 million, or 8.2%, lower than Q1 2020 primarily due to lower deposit returns and unsecured balances, combined with regulatory changes impacting fee income, partially offset by strong balance growth in mortgages and improved mortgage margins. Net interest margin increased by 3 basis points compared with Q4 2020 reflecting mortgage margin improvement, partially offset by lower hedge returns and lower unsecured balance mix. Mortgage completion margins of around 180 basis points were higher than the back book margin of around 160 basis points. Application margins were around 180 basis points in the quarter but decreased to around 165 basis points in the latter part of Q1 2021 primarily due to rising swap rates.

●

Other expenses were £35 million, or 5.9%, lower than Q1 2020 primarily reflecting a reduction in headcount.

●

Impairment losses of £34 million in Q1 2021 continue to reflect a low level of Stage 3 defaults, which benefitted from a £17 million provision release relating to a planned debt sale, and a small release from accounts flowing from Stage 2 back to Stage 1.

●

Net loans to customers increased by £2.5 billion, or 1.5%, compared with Q4 2020 due to continued strong mortgage growth of £3.0 billion, with gross new mortgage lending in the quarter of £9.6 billion, and flow share of approximately 13%. Personal advances and cards reduced by £0.2 billion and £0.3 billion respectively as customers spent less and made higher repayments, reflecting the impact of the UK Government restrictions.

●

Customer deposits increased by £7.3 billion, or 4.2%, compared with Q4 2020 as continued UK Government initiatives combined with restrictions, resulted in lower customer spend and increased savings.

●

RWAs decreased by £1.7 billion, or 4.6%, compared with Q4 2020 largely reflecting lower unsecured balances and continued quality improvements supported by rising house prices and customer behaviour.

 

 



 

Business performance summary

Private Banking




Quarter ended





31 March

31 December

31 March





2021

2020

2020





£m

£m

£m

Total income




185

184

201

Operating expenses




(121)

(91)

(123)

  o f which: Other expenses




(122)

(119)

(118)

Impairment releases/(losses)




-

(26)

(29)

Operating profit




64

67

49

Return on equity




12.4%

13.3%

9.8%

Net interest margin




1.79%

1.86%

2.25%

Cost:income ratio




65.4%

49.5%

61.2%

Loan impairment rate




0bps

61bps

73bps

 

 




As at





31 March

31 December





2021

2020





£bn

£bn

Net loans to customers - amortised cost




17.5

17.0

Customer deposits




33.5

32.4

RWAs




11.2

10.9

Assets Under Management (AUMs)




29.4

29.1

Assets Under Administration (AUAs) (1)




3.2

3.0

Total Assets Under Management and Administration (AUMA)




32.6

32.1

 

Note:

(1)  Private Banking manages AUA portfolios on behalf of Retail Banking and RBS International and receives a management fee in respect of providing this service.

 

Private Banking delivered a resilient operating performance in the quarter, including strong balance growth, which supported a Q1 2021 return on equity of 12.4%. AUMA growth in the quarter included record investment inflows of £245 million into digital investment products: NatWest Invest, Royal Bank Invest and Coutts Invest, more than double the level seen in Q4 2020.


●

Private Banking remains committed to supporting clients through a range of initiatives, including the provision of mortgage and personal loan repayment deferrals in appropriate circumstances and via participation in the UK Government's financial support schemes. As at 31 March 2021, £61 million BBLS, £234 million CBILS and £44 million CLBILS had been approved.

●

Total income was £16 million, or 8.0%, lower than Q1 2020 primarily reflecting lower deposit returns partially offset by strong balance growth. Net interest margin decreased by 7 basis points compared with Q4 2020 reflecting lower deposit returns and higher liquidity portfolio costs.

●

Net loans to customers increased by £0.5 billion, or 2.9%, compared with Q4 2020 due to mortgage lending growth.

●

AUMAs increased by £0.5 billion, or 1.6%, compared with Q4 2020 reflecting positive investment performance of £0.1 billion and net new money inflows of £0.4 billion, which were impacted by EEA resident client outflows following the UK's exit from the EU.


 

 

 

 

 

 



 

Business performance summary

Commercial Banking




Quarter ended






31 March

31 December

31 March






2021

2020

2020






£m

£m

£m

Total income





941

951

1,008

Operating expenses





(583)

(656)

(610)

  of which: Other expenses (excluding OLD)





(513)

(560)

(532)

Impairment releases/(losses)





117

(10)

(435)

Operating profit/(loss)





475

285

(37)

Return on equity





14.9%

8.1%

(2.5%)

Net interest margin





1.54%

1.56%

1.83%

Cost:income ratio





60.5%

67.8%

59.1%

Loan impairment rate





(43)bps

4bps

157bps

 

 




As at






31 March

31 December






2021

2020






£bn

£bn

Net loans to customers - amortised cost





106.6

108.2

Customer deposits





169.4

167.7

RWAs





71.6

75.1

 

Commercial Banking delivered a solid performance in Q1 2021 despite the continued impact of UK Government restrictions and a challenging operating environment. Commercial Banking will continue to play a key role in helping its customers recover and grow as the wider economy re-opens through Pay As You Grow, for existing Bounce Back Loan customers, and by supporting continued access to finance through the new Recovery Loan Scheme.


●

Commercial Banking continues to support customers through a comprehensive package of initiatives including participation in the UK Government's financial support schemes. As at 31 March 2021, £9.1 billion BBLS, £4.0 billion CBILS and £1.3 billion CLBILS had been approved and there were active payment holidays on c.8,900 customer accounts, representing 2% of the lending book by value, compared to 4% at the end of 2020.

●

Total income was £67 million, or 6.6%, lower than Q1 2020 reflecting lower deposit returns and subdued transactional business activity. Net interest margin decreased by 2 basis points compared with Q4 2020 mainly reflecting lower hedge returns.

●

Other expenses, excluding OLD, decreased by £19 million, or 3.6%, compared with Q1 2020 as cost reduction actions were partially offset by higher remediation costs and increased back office operations costs. 

●

A net impairment release of £117 million in Q1 2021 mainly reflected a modest improvement in underlying portfolio credit metrics, with minimal Stage 3 defaults.

●

Net loans to customers decreased by £1.6 billion, or 1.5%, compared with Q4 2020 as lower SME & mid corporates lending and net RCF repayments of £0.3 billion were partially offset by £0.5 billion drawdowns against UK Government financial support schemes, including £0.3 billion related to BBLS and £0.2 billion related to CBILS. RCF utilisation remained stable with Q4 2020 at c.22% of committed facilities.

●

Customer deposits increased by £1.7 billion, or 1.0%, compared with Q4 2020 as customers continued to build and retain liquidity in light of economic uncertainty and the continued impact of UK Government initiatives.

●

RWAs decreased by £3.5 billion, or 4.7%, compared with Q4 2020 reflecting lower lending volumes, £0.6 billion active capital management, £0.5 billion lower operational risk and a £0.2 billion risk parameter improvement.

 



 

Business performance summary

International Banking & Markets

RBS International

 




Quarter ended






31 March

31 December

31 March






2021

2020

2020






£m

£m

£m

Total income





123

126

144

Operating expenses





(57)

(112)

(61)

  of which: Other expenses





(52)

(73)

(60)

Impairment releases/(losses)





2

(27)

(15)

Operating profit/(loss)





68

(13)

68

Return on equity





17.5%

(5.5%)

19.4%

Net interest margin





1.06%

1.03%

1.45%

Cost:income ratio





46.3%

88.9%

42.4%

Loan impairment rate





(5)bps

81bps

44bps



 




As at






31 March

31 December






2021

2020






£bn

£bn

Net loans to customers - amortised cost





14.7

13.3

Customer deposits





33.3

31.3

RWAs





7.7

7.5

 

 

RBS International (RBSI) Q1 2021 return on equity of 17.5% was supported by strong lending volumes, cost management discipline and a small impairment release. RBSI implemented a range of mobile and online banking enhancements, including the introduction of Cora for RBSI online and mobile, whilst continuing to support customers through the ongoing COVID-19 pandemic.  


●

As at 31 March 2021, RBSI was supporting 106 mortgage repayment breaks, reflecting a mortgage value of £21 million, and was providing 226 business customers with working capital facilities, reflecting a value of £424 million, whilst continuing to suspend a range of fees and charges for its personal and business customers.

●

Total income was £21 million, or 14.6%, lower than Q1 2020 primarily reflecting the impact of the interest rate reductions on deposit income. Net interest margin increased by 3 basis points compared with Q4 2020 mainly reflecting higher average lending volumes in the Institutional Banking sector.

●

Other expenses were £8 million, or 13.3%, lower than Q1 2020 mainly reflecting lower project spend and an 11.1% reduction in headcount.

●

Net loans to customers increased by £1.4 billion, or 10.5%, compared with Q4 2020 reflecting incremental Funds business in the Institutional Banking sector.  

●

Customer deposits increased by £2.0 billion, or 6.4%, compared with Q4 2020 due to an inflow of short term call deposits in the Institutional Banking sector as Funds customer activity increased.

 

 

 



 

Business performance summary

International Banking & Markets

NatWest Markets (1)

 




Quarter ended






31 March

31 December

31 March






2021

2020

2020






£m

£m

£m

Total income





189

73

543

of which:








  - Income excluding asset disposals/strategic risk reduction and own   credit adjustments


191

124

388

  - Asset disposals/strategic risk reduction (2)




(4)

(8)

-

  - Own credit adjustments





2

(43)

155

Operating expenses





(275)

(301)

(342)

  of which: Other expenses





(240)

(244)

(298)

Impairment releases/(losses)





6

(2)

5

Operating (loss)/profit





(80)

(230)

206

Return on equity





(6.3%)

(15.0%)

8.7%

Cost:income ratio





145.5%

nm

63.0%

 




As at






31 March

31 December






2021

2020






£bn

£bn

Funded Assets





105.7

105.9

RWAs





26.5

26.9

 

Notes:

(1)  The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity (NWM Plc) or group (NWM or NWM Group). The NatWest Markets segment excludes the Central items & other segment.

(2)  Asset disposals/strategic risk reduction in 2020 relates to the cost of exiting positions and the impact of risk reduction transactions entered into, in respect of the strategic announcement on 14 February 2020.

 

NatWest Markets continued to make good progress on refocusing to better support NatWest Group's customers and to create a more sustainable business. During the quarter NatWest Markets maintained its strong performance in climate and sustainability financing delivering £3.0 billion of financing towards NatWest Group's 2021 target. Building on the momentum gained in 2020, further changes to simplify its operations were announced in the first quarter of 2021, including plans to consolidate its operational footprint in Asia. NatWest Markets also announced the last part of the One Bank strategy to bring teams and expertise together from across the bank.

 

●

Total income was £354 million, or 65.2%, lower than Q1 2020 reflecting more normalised levels of customer activity, with the prior period impacted by exceptional levels of market activity generated by the initial spread of the COVID-19 virus, a £153 million reduction in OCA, as credit spreads tightened, and disposal losses of £4 million in the current period.

●

Other expenses were £58 million, or 19.5%, lower than Q1 2020 reflecting continued reductions in line with the strategic announcement in February 2020.

●

RWAs decreased by £0.4 billion compared with Q4 2020 reflecting £0.6 billion lower counterparty credit risk and £0.5 billion lower credit risk partially offset by a £0.7 billion increase in market risk as customer activity increased from the seasonally lower level at the end of 2020.

 

 



 

Business performance summary

Ulster Bank RoI




Quarter ended






31 March

31 December

31 March






2021

2020

2020






 m

 m

 m

Total income





142

144

150

Operating expenses





(143)

(127)

(143)

  of which: Other expenses





(132)

(112)

(137)

Impairment releases/(losses)





14

3

(32)

Operating profit/(loss)





13

20

(25)

Return on equity





2.6%

3.9%

(4.3%)

Net interest margin





1.49%

1.48%

1.56%

Cost:income ratio





100.7%

88.2%

95.3%

Loan impairment rate





(27)bps

(6)bps

58bps









 




As at






31 March

31 December






2021

2020






 bn

 bn

Net loans to customers - amortised cost





19.8

20.0

Customer deposits





21.7

21.8

RWAs





13.1

13.2

 

Note:

(1)  Ratios have been presented on a Euro basis. Comparatives have been restated.


Plans remain on track to proceed with a phased withdrawal from the Republic of Ireland over the coming years, which will be managed in an orderly and considered manner. Ulster Bank RoI remains open for business and continues to support its customers through this transition and challenges of COVID-19.  Constructive discussions remain ongoing with Allied Irish Banks, p.l.c. for the sale of a c.€4.0 billion portfolio of performing commercial loans and continue with Permanent TSB Group Holdings p.l.c. among other strategic banking counterparties about their potential interest in other parts of the bank.



●

Total income was €8 million, or 5.3%, lower than Q1 2020 reflecting a reduction in lending volumes and fee income due to COVID-19, partly offset by an increase in FX gains. Net interest margin of 1.49% was broadly stable compared with Q4 2020.

●

Other expenses were €5 million, or 3.6%, lower than Q1 2020 due to a 6.9% reduction in headcount and lower back office operations costs, partly offset by increased government levies.

●

A net impairment release of €14 million in the quarter primarily reflects improvements in the mortgage portfolio.

●

Net loans to customers decreased by €0.2 billion, or 1.0%, compared with Q4 2020 as repayments continued to exceed gross new lending of €0.4 billion.

●

Customer deposits decreased by €0.1 billion, or 0.5%, compared with Q4 2020 mainly due to a reduction in commercial balances. The loan:deposit ratio remained broadly stable at 91%.

 

 

Central items & other


Quarter ended



31 March

31 December

31 March





2021

2020

2020





£m

£m

£m




Central items not allocated

(27)

(154)

(70)




 

●

A £27 million operating loss within central items not allocated mainly reflects a £118 million day one loss on redemption of own debt related to the repurchase of legacy instruments, which will result in annual net interest savings of c.£49 million, and strategic costs, largely offset by the £121 million share of gains under equity accounting for Business Growth Fund and other treasury income.



 

 


Segment performance

 


Quarter ended 31 March 2021





International Banking & Markets





Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

Total NatWest


Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group


£m

£m

£m

£m

£m

£m

£m

£m

Income statement









Net interest income

973

115

643

89

(7)

94

24

1,931

Non-interest income

83

70

298

34

194

30

17

726

Own credit adjustments

-

-

-

-

2

-

-

2

Total income

1,056

185

941

123

189

124

41

2,659

Direct expenses









  - staff costs

(116)

(34)

(141)

(26)

(111)

(47)

(397)

(872)

  - other costs

(61)

(9)

(66)

(13)

(29)

(23)

(566)

(767)

Indirect expenses

(380)

(79)

(341)

(13)

(100)

(45)

958

-

Strategic costs









  - direct

(11)

-

(26)

(4)

(30)

-

(89)

(160)

  - indirect

(17)

(4)

(9)

(1)

(5)

(1)

37

-

Litigation and conduct costs

(2)

5

-

-

-

(9)

(10)

(16)

Operating expenses

(587)

(121)

(583)

(57)

(275)

(125)

(67)

(1,815)

Operating profit/(loss)before impairment (losses)/releases

469

64

358

66

(86)

(1)

(26)

844

Impairment (losses)/releases

(34)

-

117

2

6

12

(1)

102

Operating profit/(loss)

435

64

475

68

(80)

11

(27)

946

Additional information









Return on equity  (1)

23.0%

12.4%

14.9%

17.5%

(6.3%)

2.5%

nm

7.9%

Cost:income ratio (1)

55.6%

65.4%

60.5%

46.3%

145.5%

100.8%

nm

67.8%

Total assets (£bn)

199.2

26.9

187.1

36.7

226.8

25.9

67.2

769.8

Funded assets (£bn)  (1)

199.2

26.9

187.1

36.7

105.7

25.9

65.3

646.8

Net loans to customers - amortised cost (£bn)

174.8

17.5

106.6

14.7

7.5

16.9

20.7

358.7

Loan impairment rate (1)

8bps

0bps

(43)bps

(5)bps

nm

(27)bps

nm

(11)bps

Impairment provisions (£bn)

(1.8)

(0.1)

(2.7)

(0.1)

(0.1)

(0.7)

(0.1)

(5.6)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(0.9)

-

(0.1)

(0.5)

(0.1)

(2.4)

Customer deposits (£bn)

179.1

33.5

169.4

33.3

2.4

18.4

17.2

453.3

Risk-weighted assets (RWAs) (£bn)

35.0

11.2

71.6

7.7

26.5

11.1

1.6

164.7

RWA equivalent (RWAe) (£bn)

35.0

11.2

71.7

7.7

29.2

11.1

1.7

167.6

Employee numbers (FTEs - thousands)

15.8

1.9

9.5

1.6

2.1

2.7

26.0

59.6

Third party customer asset rate (2)

2.73%

2.36%

2.65%

2.29%

nm

2.35%

nm

nm

Third party customer funding rate (2)

(0.08%)

(0.00%)

(0.01%)

0.05%

nm

(0.06%)

nm

nm

Average interest earning assets (£bn) (1)

191.2

26.0

169.4

34.1

32.4

25.8

nm

512.2

Bank net interest margin (1)

2.06%

1.79%

1.54%

1.06%

na

1.48%

nm

1.64%

nm = not meaningful, na = not applicable.

Refer to page 14 for the notes to this table.

Segment performance


Quarter ended 31 December 2020





International Banking & Markets





Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

Total NatWest


Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group


£m

£m

£m

£m

£m

£m

£m

£m

Income statement









Net interest income

949

118

667

85

(2)

101

53

1,971

Non-interest income

25

66

284

41

118

30

43

607

Own credit adjustments

-

-

-

-

(43)

-

-

(43)

Total income

974

184

951

126

73

131

96

2,535

Direct expenses









  - staff costs

(117)

(32)

(141)

(25)

(90)

(48)

(385)

(838)

  - other costs

(56)

(16)

(72)

(16)

(21)

(21)

(781)

(983)

Indirect expenses

(393)

(71)

(382)

(32)

(133)

(31)

1,042

-

Strategic costs









  - direct

(6)

2

(35)

(37)

(50)

(3)

(197)

(326)

  - indirect

(36)

(3)

(28)

(1)

(6)

(3)

77

-

Litigation and conduct costs

(210)

29

2

(1)

(1)

(8)

(5)

(194)

Operating expenses

(818)

(91)

(656)

(112)

(301)

(114)

(249)

(2,341)

Operating profit/(loss) before impairment (losses)/releases

156

93

295

14

(228)

17

(153)

194

Impairment (losses)/releases

(65)

(26)

(10)

(27)

(2)

1

(1)

(130)

Operating profit/(loss)

91

67

285

(13)

(230)

18

(154)

64

Additional information









Return on equity  (1)

3.8%

13.3%

8.1%

(5.5%)

(15.0%)

3.9%

nm

(1.4%)

Cost:income ratio (1)

84.0%

49.5%

67.8%

88.9%

nm

87.0%

nm

92.2%

Total assets (£bn)

197.6

26.2

187.4

34.0

270.1

26.6

57.6

799.5

Funded assets (£bn)  (1)

197.6

26.2

187.4

34.0

105.9

26.6

55.3

633.0

Net loans to customers - amortised cost (£bn)

172.3

17.0

108.2

13.3

8.4

18.0

23.3

360.5

Loan impairment rate (1)

15bps

61bps

4bps

81bps

nm

(2)bps

nm

14bps

Impairment provisions (£bn)

(1.8)

(0.1)

(2.9)

(0.1)

(0.2)

(0.8)

(0.1)

(6.0)

Impairment provisions - stage 3 (£bn)

(0.8)

-

(1.1)

-

(0.1)

(0.5)

(0.1)

(2.6)

Customer deposits (£bn)

171.8

32.4

167.7

31.3

2.6

19.6

6.3

431.7

Risk-weighted assets (RWAs) (£bn)

36.7

10.9

75.1

7.5

26.9

11.8

1.4

170.3

RWA equivalent (RWAe) (£bn)

36.7

10.9

75.1

7.5

28.7

11.8

1.6

172.3

Employee numbers (FTEs - thousands)

16.0

1.8

9.6

1.7

2.2

2.7

25.9

59.9

Third party customer asset rate (2)

2.81%

2.38%

2.65%

2.34%

nm

2.33%

nm

nm

Third party customer funding rate (2)

(0.10%)

(0.01%)

(0.01%)

0.05%

nm

(0.07%)

nm

nm

Average interest earning assets (£bn) (1)

186.1

25.2

170.2

32.9

36.5

26.8

nm

509.6

Bank net interest margin (1)

2.03%

1.86%

1.56%

1.03%

na

1.50%

nm

1.66%

nm = not meaningful, na = not applicable.

Refer to page 14 for the notes to this table.



 

Segment performance


Quarter ended 31 March 2020





International Banking & Markets





Retail

Private

Commercial

RBS

NatWest

Ulster

Central items

Total NatWest


Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group


£m

£m

£m

£m

£m

£m

£m

£m

Income statement









Net interest income

1,007

127

674

111

(40)

97

(34)

1,942

Non-interest income

143

74

334

33

428

32

21

1,065

Own credit adjustments

-

-

-

-

155

-

-

155

Total income

1,150

201

1,008

144

543

129

(13)

3,162

Direct expenses









  - staff costs

(135)

(39)

(174)

(32)

(167)

(48)

(324)

(919)

  - other costs

(58)

(16)

(73)

(14)

(57)

(24)

(553)

(795)

Indirect expenses

(399)

(63)

(321)

(14)

(74)

(46)

917

-

Strategic costs









  - direct

-

-

(2)

(1)

(34)

(1)

(93)

(131)

  - indirect

(34)

(5)

(39)

(3)

(8)

(4)

93

-

Litigation and conduct costs

97

-

(1)

3

(2)

-

(93)

4

Operating expenses

(529)

(123)

(610)

(61)

(342)

(123)

(53)

(1,841)

Operating profit/(loss) before impairment (losses)/releases

621

78

398

83

201

6

(66)

1,321

Impairment (losses)/releases

(297)

(29)

(435)

(15)

5

(27)

(4)

(802)

Operating profit/(loss)

324

49

(37)

68

206

(21)

(70)

519

Additional information









Return on equity  (1)

15.5%

9.8%

(2.5%)

19.4%

8.7%

(4.2%)

nm

3.6%

Cost:income ratio (1)

46.0%

61.2%

59.1%

42.4%

63.0%

95.3%

nm

57.7%

Total assets (£bn)

186.3

23.4

178.3

33.2

335.7

26.3

34.4

817.6

Funded assets (£bn)  (1)

186.3

23.4

178.3

33.2

129.6

26.3

31.8

608.9

Net loans to customers - amortised cost (£bn)

163.7

15.8

109.2

13.6

12.2

18.7

18.1

351.3

Loan impairment rate (1)

72bps

73bps

157bps

44bps

nm

56bps

nm

90bps

Impairment provisions (£bn)

(1.6)

(0.1)

(1.7)

-

(0.1)

(0.7)

-

(4.2)

Impairment provisions - stage 3 (£bn)

(0.9)

-

(1.0)

-

(0.1)

(0.6)

-

(2.6)

Customer deposits (£bn)

152.8

29.0

143.9

32.3

5.7

19.3

1.8

384.8

Risk-weighted assets (RWAs) (£bn)

38.2

10.3

76.9

6.8

38.9

12.7

1.4

185.2

RWA equivalent (RWAe) (£bn)

38.2

10.3

77.0

7.1

42.2

12.7

1.7

189.2

Employee numbers (FTEs - thousands)

17.3

1.8

9.5

1.8

5.1

2.9

24.8

63.2

Third party customer asset rate (2)

3.07%

2.81%

3.22%

2.72%

nm

2.28%

nm

nm

Third party customer funding rate (2)

(0.36%)

(0.32%)

(0.18%)

(0.10%)

nm

(0.08%)

nm

nm

Average interest earning assets (£bn) (1)

177.4

22.7

148.4

30.9

36.1

24.9

nm

458.5

Bank net interest margin (1)

2.28%

2.25%

1.83%

1.45%

na

1.56%

nm

1.89%

nm = not meaningful, na = not applicable.

Notes:

(1)  Refer to the Appendix for details of the basis of preparation and reconciliation of non-IFRS performance measures where relevant.

(2)  Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. Third party customer funding rate reflects interest payable on third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, loans to banks and liquid asset portfolios. Intragroup items, bank deposits, debt securities in issue and subordinated liabilities are excluded for customer funding rate calculation. Comparatives have been restated. Net interest margin is calculated as net interest income as a percentage of the average interest-earning assets without these exclusions.


Risk and capital management

 


Page

Credit risk


  Segment analysis - portfolio summary

15

  Segment analysis - loans

16

  Movement in ECL provision

16

  Sector analysis

17

  Wholesale support schemes

18

Capital, liquidity and funding risk

19

 

Credit risk

Segment analysis - portfolio summary

The table below shows gross loans and expected credit loss (ECL), by segment and stage, within the scope of the IFRS 9 ECL framework.

 





International Banking & Markets





Retail

Private

Commercial

RBS

NatWest

Ulster

Central items



Banking

Banking

Banking

International

Markets

Bank RoI

& other

Total

31 March 2021

£m

£m

£m

£m

£m

£m

£m

£m

Loans - amortised cost and FVOCI (1)









Stage 1

150,004

16,024

72,202

13,857

6,865

13,342

24,730

297,024

Stage 2

24,569

1,876

34,572

2,089

1,413

3,274

111

67,904

Stage 3

1,957

295

2,399

202

111

1,141

-

6,105

Of which: individual

-

295

1,380

202

102

83

-

2,062

Of which: collective

1,957

-

1,019

-

9

1,058

-

4,043


176,530

18,195

109,173

16,148

8,389

17,757

24,841

371,033

ECL provisions  (2)









Stage 1

145

29

255

19

12

42

13

515

Stage 2

851

70

1,599

71

43

249

15

2,898

Stage 3

821

36

937

44

91

452

-

2,381

Of which: individual

-

36

494

44

82

14

-

670

Of which: collective

821

-

443

-

9

438

-

1,711


1,817

135

2,791

134

146

743

28

5,794

ECL provisions coverage  (3,4)









Stage 1 (%)

0.10

0.18

0.35

0.14

0.17

0.31

0.05

0.17

Stage 2 (%)

3.46

3.73

4.63

3.40

3.04

7.61

13.51

4.27

Stage 3 (%)

41.95

12.20

39.06

21.78

81.98

39.61

-

39.00


1.03

0.74

2.56

0.83

1.74

4.18

0.11

1.56

31 December 2020









Loans - amortised cost and FVOCI  (1)









Stage 1

139,956

15,321

70,685

12,143

7,780

14,380

26,859

287,124

Stage 2

32,414

1,939

37,344

2,242

1,566

3,302

110

78,917

Stage 3

1,891

298

2,551

211

171

1,236

-

6,358

Of which: individual

-

298

1,578

211

162

43

-

2,292

Of which: collective

1,891

-

973

-

9

1,193

-

4,066


174,261

17,558

110,580

14,596

9,517

18,918

26,969

372,399

ECL provisions  (2)









Stage 1

134

31

270

14

12

45

13

519

Stage 2

897

68

1,713

74

49

265

15

3,081

Stage 3

806

39

1,069

48

132

492

-

2,586

Of which: individual

-

39

607

48

124

13

-

831

Of which: collective

806

-

462

-

8

479

-

1,755


1,837

138

3,052

136

193

802

28

6,186

ECL provisions coverage  (3,4)









Stage 1 (%)

0.10

0.20

0.38

0.12

0.15

0.31

0.05

0.18

Stage 2 (%)

2.77

3.51

4.59

3.30

3.13

8.03

13.64

3.90

Stage 3 (%)

42.62

13.09

41.91

22.75

77.19

39.81

-

40.67


1.05

0.79

2.76

0.93

2.03

4.24

0.10

1.66

 

Notes:

(1)  Fair value through other comprehensive income (FVOCI).

(2)  Includes £7 million (31 December 2020 - £6 million) related to assets classified as FVOCI.

(3)  ECL provisions coverage is calculated as ECL provisions divided by loans - amortised cost and FVOCI.

(4)  ECL provisions coverage and ECL loss rates are calculated on third party loans and related ECL provisions and charge respectively. ECL loss rate is calculated as annualised third party ECL charge divided by loans - amortised cost and FVOCI.

(5)  The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £139.2 billion (31 December 2020 - £122.7 billion) and debt securities of £51.2 billion (31 December 2020 - £53.8 billion).



 

Risk and capital management

Credit risk continued

Segment analysis - portfolio summary

Key points

· Stage 1 and Stage 2 ECL reduced during Q1 2021, mainly in the Wholesale portfolios, reflecting an improvement in underlying credit metrics.

· Stage 3 ECL balances decreased due to the write-off of previously defaulted debt. The extension of various COVID-19 related customer support mechanisms has also mitigated new flows into default. It is expected that defaults will increase once government support mechanisms end. 

· Loan balances in Stage 2 reduced during the quarter but remained elevated following the deterioration in forward-looking probability of default (PD) during H1 2020. In Q4 2020, the forecast economics improved, resulting in reduced PDs and driving some migration of exposure back into Stage 1 during Q1 2021.

· The economic scenarios driving the ECL requirement, as well as the model performance considerations, were consistent with those described in the NatWest Group plc 2020 Annual Report and Accounts, along with further detail on various aspects of the IFRS 9 process.

 

Segment analysis - loans

Key points

· Retail Banking : Balance sheet growth continued during Q1 2021, driven by mortgages, where new lending remained strong. Unsecured lending balances continued to reduce during Q1 2021, as customer spend and demand for unsecured borrowing remained subdued, in line with recent industry trends. Stage 2 balances decreased, primarily as a result of the improved economic outlook since H1 2020, with reduced PDs driving migration back into Stage 1 after conclusion of the three month significant increase in credit risk "persistence" period. Stage 3 ECL increased, predominantly driven by customers exceeding 90 days past due after being unable to resume full repayments following payment holidays that concluded in late 2020. However, the various COVID-19 related customer support schemes (for example, loan repayment holidays and the government job retention scheme) continued to mitigate observable portfolio deterioration in the short-term.

· Commercial Banking : Balance sheet exposure reduced, with lower demand than Q3 and Q4 2020 for new lending under government support schemes, as well as a decrease in non-scheme lending. The uncertain outlook resulted in delayed investment and low confidence among customers leading to the repayment of revolving credit facilities and working capital facilities as liquidity is optimised. Construction (in Property), Retail and Leisure were the top three sectors for borrowers accessing the government lending schemes. Stage 2 exposure decreased further during the quarter. This was driven by modest improvement in underlying credit metrics resulting in the migration of exposure to Stage 1 coupled with underlying balance reduction. For those balances that migrated to Stage 2 during the period, consistent with prior periods, PD deterioration remained the largest contributor to Stage 2 migration. The flow of exposure into Stage 3 remained low during Q1 2021, as government interventions and relief continue to mitigate against defaults. Sector appetite continued to be regularly reviewed and was adjusted for those sectors most affected by COVID-19, most notably a reduction in off-balance sheet exposures in the Land Transport & Logistics, Oil and Gas and Retail sectors. While Wholesale forbearance increased significantly during the first half of 2020, there has been a reducing trend since then. This continued during Q1 2021 as customers returned to normal repayment schedules. The Leisure, Automotive and Services sectors represented the largest share of forbearance flow in the Wholesale portfolio, by value, in Q1 2021. Payment holidays and covenant waivers were the most common forms of forbearance granted.

· Ulster Bank RoI: Balance sheet exposure reduced with diminished credit demand caused by ongoing COVID-19 disruption. The weakening of the euro against sterling during the quarter further contributed to this balance sheet reduction. The decrease in ECL reflected continued improvements in the Stage 3 portfolio as well as currency fluctuations.

 

Movement in ECL provision

The table below shows the main ECL provision movements during the reporting period.


ECL provision


£m

At 1 January 2021

6,186

Changes in economic forecasts

-

Changes in risk metrics and exposure: Stage 1 and Stage 2

(198)

Changes in risk metrics and exposure: Stage 3

58

Judgemental changes: changes in post model adjustments for Stage 1, Stage 2 and Stage 3

56

Write-offs and other

(308)

At 31 March 2021

5,794

 

Key points

· ECL reduced during Q1 2021, reflecting a decrease in underlying exposures as well as foreign exchange movements.

· Stage 3 defaults continued to be mitigated by COVID-19 support mechanisms. Additionally, broader portfolio deterioration continued to be subdued and resulted in favourable movements in IFRS 9 risk metrics, which lead to some additional post model adjustments being required to ensure provision adequacy.

Risk and capital management

Credit risk continued

S ector analysis

The table below shows ECL, by stage, for the Personal portfolio and key sectors of the Wholesale portfolio, that continue to be affected by COVID-19.



Off-balance sheet




Loans - amortised cost & FVOCI

Loan


Contingent


ECL provisions


Stage 1

Stage 2

Stage 3

Total

commitments


liabilities


Stage 1

Stage 2

Stage 3

Total

31 March 2021

£m

£m

£m

£m

£m


£m


£m

£m

£m

£m

Personal

176,310

26,576

3,212

206,098

37,221


43


181

949

1,201

2,331

  Mortgages

168,293

22,389

2,484

193,166

12,523


2


49

309

605

963

  Credit cards

2,236

1,219

85

3,540

14,571


-


59

214

65

338

  Other personal

5,781

2,968

643

9,392

10,127


41


73

426

531

1,030

Wholesale

120,714

41,328

2,893

164,935

85,777


4,327


334

1,949

1,180

3,463

  Property

24,299

12,055

1,236

37,590

16,948


505


126

435

485

1,046

  Financial institutions

43,392

3,317

13

46,722

14,220


947


24

94

7

125

  Sovereign

4,949

116

9

5,074

1,428


2


17

1

1

19

  Corporate

48,074

25,840

1,635

75,549

53,181


2,873


167

1,419

687

2,273

  Of which:













  Airlines and aerospace

548

1,296

61

1,905

1,773


211


2

36

39

77

  Automotive

4,376

1,760

124

6,260

4,173


97


15

67

16

98

  Education

752

788

63

1,603

1,131


16


2

43

18

63

  Health

2,880

2,624

176

5,680

670


13


13

202

51

266

  Land transport and logistics

3,004

1,658

94

4,756

3,110


184


7

102

31

140

  Leisure

3,335

5,746

336

9,417

2,223


123


18

362

153

533

  Oil and gas

1,052

427

63

1,542

1,749


304


4

25

32

61

  Retail

6,719

2,254

182

9,155

5,532


488


15

134

89

238

Total

297,024

67,904

6,105

371,033

122,998


4,370


515

2,898

2,381

5,794

31 December 2020













Personal

166,548

34,352

3,288

204,188

38,960


45


171

996

1,228

2,395

  Mortgages

158,387

29,571

2,558

190,516

14,554


3


51

319

635

1,005

  Credit cards

2,411

1,375

109

3,895

14,262


-


53

225

76

354

  Other personal

5,750

3,406

621

9,777

10,144


42


67

452

517

1,036

Wholesale

120,576

44,565

3,070

168,211

89,845


4,785


348

2,085

1,358

3,791

  Property

23,733

13,021

1,322

38,076

16,829


568


123

507

545

1,175

  Financial institutions

44,002

3,624

17

47,643

15,935


1,076


23

90

8

121

  Sovereign

4,751

204

4

4,959

1,585


2


14

1

2

17

  Corporate

48,090

27,716

1,727

77,533

55,496


3,139


188

1,487

803

2,478

  Of which:













  Airlines and aerospace

753

1,213

41

2,007

1,888


215


2

42

25

69

  Automotive

4,383

1,759

161

6,303

4,205


102


17

63

17

97

  Education

821

754

63

1,638

1,016


16


2

41

17

60

  Health

2,694

2,984

131

5,809

616


14


13

164

48

225

  Land transport and logistics

2,868

1,823

111

4,802

3,782


197


8

98

32

138

  Leisure

3,299

6,135

385

9,819

2,199


125


22

439

204

665

  Oil and gas

1,178

300

83

1,561

2,225


346


4

20

59

83

  Retail

6,702

2,282

187

9,171

5,888


512


18

112

101

231

Total

128,805


4,830


519

3,081

6,186

 

Key points

· Personal: As noted earlier, ECL in Stage 1 and Stage 2 decreased due to continued reduction in unsecured balances and subdued portfolio deterioration, maintaining the reduced PD levels observed in Q4 2020. This resulted in a reduction of Stage 2 assets during Q1 2021. The ECL coverage requirements were broadly stable during Q1 2021.

· Wholesale: On and off-balance sheet exposure reduced during the quarter with slowing demand for COVID-19 government lending schemes. There was a £0.6 billion increase in government lending schemes in Q1 2021 (refer to the Wholesale Support Schemes table on the following page for further information). When BBLS, CBILS and CLBILS closed, approximately 315,000 applications across all the schemes had been approved, totalling £14.7 billion in new lending, of which, £13.5 billion had been drawdown. 62% of the total new lending by value had been granted through BBLS.   Construction (in Property), Retail and Leisure remained the top three sectors for borrowers accessing the government lending schemes. Sector appetite continued to be regularly reviewed and where appropriate adjusted, for those sectors most affected by COVID-19. Stage 2 exposures reduced during Q1 2021.

 



 

Risk and capital management

Credit risk continued

Wholesale support schemes

The table below shows the uptake of the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) by Wholesale customers, by sector.

 


BBLS


CBILS


CLBILS


Approved

Drawdown

% of BBLS to


Approved

Drawdown

% of CBILS to


Approved

Drawdown

% of CLBILS to

31 March 2021

volume

amount (£m)

sector loans


volume

amount (£m)

sector loans


volume

amount (£m)

sector loans

Wholesale lending by sector












  Airlines and aerospace

269

7

0.37%


20

9

0.47%


4

11

0.58%

  Automotive

12,969

429

6.85%


584

150

2.40%


27

58

0.93%

  Education

2,091

55

3.43%


120

76

4.74%


10

33

2.06%

  Health

10,471

327

5.76%


621

100

1.76%


3

24

0.42%

  Land transport and logistics

9,107

264

5.55%


392

102

2.14%


3

9

0.19%

  Leisure

33,103

1,024

10.87%


2,162

565

6.00%


38

214

2.27%

  Oil and gas

335

10

0.65%


14

7

0.45%


-

-

-

  Retail

33,127

1,113

12.16%


1,638

430

4.70%


30

107

1.17%

  Property

72,172

2,078

5.53%


2,465

692

1.84%


41

120

0.32%

  Other (including Business












  Banking)

124,611

3,321

3.82%


8,798

1,873

2.15%


86

275

0.32%

Total

298,255

8,628

5.23%


16,814

4,004

2.43%


242

851

0.52%

31 December 2020






Wholesale lending by sector












  Airlines and aerospace

253

7

0.35%


21

9

0.45%


4

8

0.40%

  Automotive

12,301

416

6.60%


553

139

2.21%


31

58

0.92%

  Education

1,943

53

3.24%


111

73

4.46%


11

37

2.26%

  Health

9,821

314

5.41%


601

101

1.74%


3

24

0.41%

  Land transport and logistics

8,575

255

5.31%


365

97

2.02%


3

5

0.10%

  Leisure

31,148

989

10.07%


1,983

512

5.21%


34

173

1.76%

  Oil and gas

303

9

0.58%


15

8

0.51%


-

-

-

  Retail

31,315

1,078

11.75%


1,548

416

4.54%


29

121

1.32%

  Property

67,698

1,996

5.24%


2,350

664

1.74%


41

133

0.35%

  Other (including Business












  Banking)

118,486

3,181

3.57%


8,504

1,752

1.97%


86

267

0.30%

Total

8,298

4.93%


3,771

2.24%


242

826

0.49%

 

Notes:

(1)  The table contains some cases which as at 31 March 2021 were approved but not yet drawn down. Approved limits as at 31 March 2021 were as follows: BBLS - £9.1 billion (94% drawn); CBILS - £4.3 billion (94% drawn); and CLBILS - £1.3 billion (64% drawn).

(2)  The UK Government schemes ended for new applications on 31 March 2021. NatWest Group will continue to help customers recover and grow, through Pay as You Grow for existing BBLS customers and supporting access to finance through the new Recovery Loan Scheme.




 

Risk and capital management

Capital, liquidity and funding risk

Introduction

NatWest Group continually ensures a comprehensive approach is taken to the management of Capital, Liquidity and Funding,

underpinned by frameworks, risk appetite and policies, to manage and mitigate Capital, Liquidity and Funding risks. The framework ensures the tools and capability are in place to facilitate the management and mitigation of risk ensuring that NatWest Group operates within its regulatory requirements and risk appetite.

 

Within the 2020 Annual Report and Accounts, NatWest Group outlined a number of COVID-19 specific relief measures which impacted capital and leverage ratios during the year. Below is the one relief measure which was only a temporary amendment and therefore is reverting to the previous rules in 2021.

 

· Prudential Valuation Adjustment (PVA) -   From 1 January 2021 the aggregation factor reverts back to 50% from 66%. This has increased NatWest Group's PVA deduction by c.£85 million.

 

The CRR quick fix addressing COVID-19 relief measures also resulted in the acceleration of a number of changes introduced in CRR2 including prudential amortisation for software, an Infrastructure supporting factor, and a broadening of the SME supporting factor.

 

 

Key developments

 

CET1

The CET1 ratio decreased by 30 basis points to 18.2% reflecting the impact of the directed buy back and associated pension contribution of £1.2 billion (72 basis points), foreseeable dividend accrual of £0.2 billion (11 basis points), partially offset by the reduction in RWAs (c.60 basis points), attributable profit and other reserve movements. 

Total RWAs

Total RWAs decreased by £5.6 billion during the period, mainly reflecting a decrease in credit risk RWAs of £4.8 billion as well as a reduction in operational risk RWAs of £0.9 billion following the annual recalculation in Q1 2021. The decrease in credit risk RWAs was mainly driven by reductions in Commercial Banking, Retail Banking and Ulster Bank RoI.  Counterparty credit risk RWAs reduced by £0.5 billion during the period as a result of reduced exposures in NatWest Markets. There were offsetting increases in market risk RWAs of £0.6 billion, mainly driven by higher SVaR-based RWAs.

CRR leverage ratio

The CRR leverage ratio decreased c.20 basis points to 5.0% predominantly due to a £1.0 billion decrease in Tier 1 capital in addition to an £11.2 billion increase in the leverage exposure driven primarily by cash and balances at central banks.

UK leverage ratio

The UK leverage ratio decreased c.20 basis points to 6.2% driven by a £1.0 billion decrease in Tier 1 capital.

Liquidity portfolio

The liquidity portfolio in Q1 2021 remained broadly stable at £263 billion, with primary liquidity decreasing by £0.3 billion to £170 billion. The decrease in primary liquidity was primarily driven by repayment of TFSME funding, buy back of shares owned by the UK Government, pension fund contributions, liability management exercise and the purchase of Metro Bank loans; offset by an increase in deposits and a methodology change to include UBI DAC cash at central banks. The increase in secondary liquidity of £0.7 billion is driven by unencumbrance of assets following TFSME repayment during the quarter.

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Maximum Distributable Amount (MDA) and Minimum Capital Requirements

NatWest Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum capital requirements (the sum of Pillar 1 and Pillar 2A), and the additional capital buffers which are held in excess of the regulatory minimum requirements and are usable in stress. 

 

Where the CET1 ratio falls below the sum of the minimum capital and the combined buffer requirement, there is a subsequent automatic restriction on the amount available to service discretionary payments, known as the MDA. Note that different requirements apply to individual legal entities or sub-groups and that the table shown does not reflect any incremental PRA buffer requirements, which are not disclosable.

 

The current capital position provides significant headroom above both our minimum requirements and our MDA threshold requirements.

 

Type

CET1

Total Tier 1

Total capital

Pillar 1 requirements

4.5%

6.0%

8.0%

Pillar 2A requirements

2.0%

2.6%

3.5%

Minimum Capital Requirements

6.5%

8.6%

11.5%

Capital conservation buffer

2.5%

2.5%

2.5%

Countercyclical capital buffer (1)  

-

-

-

MDA Threshold (2)

9.0%


n/a

n/a

Subtotal

9.0%


11.1%

14.0%

Capital ratios at 31 March 2021

18.2%

21.5%

24.0%

Headroom (3)

9.2%

10.4%

10.0%

 

Notes:

(1)  Many countries announced reductions in their countercyclical capital buffer rates in response to COVID-19. Most notably for NatWest Group, the Financial Policy Committee reduced the UK rate from 1% to 0% effective from 11 March 2020. The CBI also announced a reduction of the Republic of Ireland rate from 1% to 0% effective from 1 April 2020.

(2)  Pillar 2A requirements for NatWest Group are set on a nominal capital basis, which result in an implied 9.0% MDA.

(3)  The headroom does not reflect excess distributable capital and may vary over time.



 

Risk and capital management

Capital, liquidity and funding risk continued

Capital and leverage ratios

The table below sets out the key capital and leverage ratios.

CRR basis (1)


31 March

31 December

31 March


2021

2020

2020

Capital adequacy ratios

%

%

%

CET1

18.2

18.5

16.6

Tier 1

21.5

21.4

18.8

Total

24.0

24.5

21.4





Capital

£m

£m

£m

Tangible equity

30,126

31,712

32,990





Prudential valuation adjustment

(436)

(286)

(531)

Deferred tax assets

(750)

(760)

(722)

Own credit adjustments

6

(1)

(519)

Pension fund assets

(570)

(579)

(488)

Cash flow hedging reserve

38

(229)

(259)

Foreseeable ordinary dividends

(547)

(364)

-

Foreseeable charges

-

(266)

-

Prudential amortisation of software development costs

524

473

-

Adjustments under IFRS 9 transitional arrangements

1,655

1,747

296

Total deductions

(80)

(265)

(2,223)





CET1 capital

30,046

31,447

30,767

AT1 capital

5,380

4,983

4,051

Tier 1 capital

35,426

36,430

34,818

Tier 2 capital

4,118

5,255

4,883

Total regulatory capital

39,544

41,685

39,701





Risk-weighted assets




Credit risk

125,131

129,914

136,354

Counterparty credit risk

8,579

9,104

13,917

Market risk

9,962

9,362

12,998

Operational risk

21,031

21,930

21,930

Total RWAs

164,703

170,310

185,199





Leverage




Cash and balances at central banks*

140,347

124,489

81,085

Trading assets

65,558

68,990

81,843

Derivatives

122,955

166,523

208,734

Financial assets*

418,290

422,647

421,456

Other assets

22,626

16,842

24,526

Total assets

769,776

799,491

817,644

Derivatives




  - netting and variation margin

(126,250)

(172,658)

(220,973)

  - potential future exposures

38,279

38,171

46,254

Securities financing transactions gross up

3,249

1,179

2,484

Other off balance sheet items

43,734

45,853

39,580

Regulatory deductions and other adjustments

(14,535)

(8,943)

(8,818)

CRR leverage exposure

714,253

703,093

676,171





CRR leverage ratio %  (2)

5.0

5.2

5.1





UK leverage exposure

567,959

572,558

603,070

UK leverage ratio %  (3)

6.2

6.4

5.8

 

 

*31 March 2020 has been restated for the accounting policy change for balances held with central banks. Refer to Accounting policy changes effective 1 January 2020 on page 264 in the NatWest Group plc 2020 Annual Report and Accounts for further details.

 

Notes:

(1)  Based on CRR end-point including the IFRS 9 transitional adjustment of £1,655 million. Excluding this adjustment, the CET1 ratio would be 17.2%. The amended article for the prudential treatment of software assets was implemented in December 2020, excluding this adjustment the CET1 ratio at 31 March 2021 would be 18.0%.

(2)  Presented on CRR end-point Tier 1 capital (including IFRS 9 transitional adjustment) and leverage exposure under the CRR Delegated Act. Excluding the IFRS 9 transitional adjustment, the leverage ratio would be 4.7%.

(3)  Presented on CRR end-point Tier 1 capital (including IFRS 9 transitional adjustment). The UK leverage ratio excludes central bank claims from the leverage exposure where deposits held are denominated in the same currency and of contractual maturity that is equal or longer than that of the central bank claims. Excluding the IFRS 9 transitional adjustment, the UK leverage ratio would be 6.0%.



 

Risk and capital management

Capital, liquidity and funding risk continued

Capital flow statement

The table below analyses the movement in CET1, AT1 and Tier 2 capital for the three months ended 31 March 2021.


CET1

AT1

Tier 2

Total


£m

£m

£m

£m

At 1 January 2021

31,447

4,983

5,255

41,685

Attributable profit for the period

620

-

-

620

Own credit

7

-

-

7

Share capital and reserve movements in respect of employee share schemes

20

-

-

20

Directed buy back

(1,231)

-

-

(1,231)

Foreign exchange reserve

(348)

-

-

(348)

FVOCI reserve

(89)

-

-

(89)

Goodwill and intangibles deduction

40

-

-

40

Deferred tax assets

10

-

-

10

Prudential valuation adjustments

(150)

-

-

(150)

New issues of capital instruments

-

397

-

397

Redemption of capital instruments

-

-

(1,456)

(1,456)

Net dated subordinated debt instruments

-

-

453

453

Foreign exchange movements

-

-

(62)

(62)

Foreseeable ordinary dividends

(183)

-

-

(183)

Adjustment under IFRS 9 transitional arrangements

(92)

-

-

(92)

Other movements

(5)

-

(72)

(77)

At 31 March 2021

30,046

5,380

4,118

39,544

 

Key points

· CET1 decrease primarily due to the impact of the directed buy back and associated pension contribution of £1.2 billion, foreseeable dividend accrual of £0.2 billion and other offsetting items.

· AT1 reflects the £400 million 4.5% Reset Perpetual Subordinated Contingent Convertible Notes issued in March 2021. 

· Tier 2 movement primarily due to the redemption of own debt of £1.5 billion.

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Risk-weighted assets

The table below analyses the movement in RWAs during the period, by key drivers.

 



Counterparty


Operational



Credit risk

credit risk

Market risk

 risk

Total


£bn

£bn

£bn

£bn

£bn

At 1 January 2021

129.9

9.1

9.4

21.9

170.3

Foreign exchange movement

(1.1)

(0.2)

-

-

(1.3)

Business movement

(2.2)

(0.3)

0.9

(0.9)

(2.5)

Risk parameter changes (1)

(1.0)

-

-

-

(1.0)

Model updates

(0.5)

-

(0.3)

-

(0.8)

At 31 March 2021

125.1

8.6

10.0

21.0

164.7

 

The table below analyses segmental RWAs.

 




International Banking & Markets


Central



Retail

Private

Commercial

RBS

NatWest

Ulster

items &



Banking

Banking

Banking

International

Markets

Bank RoI

 other

Total

Total RWAs

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

At 1 January 2021

36.7

10.9

75.1

7.5

26.9

11.8

1.4

170.3

Foreign exchange movement

-

-

(0.3)

(0.1)

(0.4)

(0.5)

-

(1.3)

Business movement

(0.9)

0.3

(2.5)

0.3

0.3

(0.2)

0.2

(2.5)

Risk parameter changes  (1)

(0.8)

-

(0.2)

-

-

-

-

(1.0)

Model updates

-

-

(0.5)

-

(0.3)

-

-

(0.8)

At 31 March 2021

35.0

11.2

71.6

7.7

26.5

11.1

1.6

164.7










Credit risk

27.9

9.8

63.3

6.6

5.7

10.2

1.6

125.1

Counterparty credit risk

0.1

0.1

0.2

0.1

8.1

-

-

8.6

Market risk

-

-

0.1

-

9.9

-

-

10.0

Operational risk

7.0

1.3

8.0

1.0

2.8

0.9

-

21.0

Total RWAs

35.0

11.2

71.6

7.7

26.5

11.1

1.6

164.7

 

Note:

(1)  Risk parameter changes relate to changes in credit quality metrics of customers and counterparties (such as probability of default and loss given default) as well as internal ratings based model changes relating to counterparty credit risk in line with European Banking Authority Pillar 3 Guidelines.

 

Key point

●

Total RWAs decreased by £5.6 billion during the period:

o Credit risk RWAs reduced by £4.8 billion mainly driven by a decrease in lending and active capital management in Commercial Banking along with lower unsecured balances and improved risk metrics for key customer portfolios within Retail Banking.  In addition, favourable foreign exchange movements resulted in further reductions.

o Counterparty credit risk RWAs reduced by £0.5 billion, mainly reflecting reduced IMM exposures in NatWest Markets.

o The £0.6 billion increase in market risk RWAs reflected an increase in modelled market risk mainly driven by higher SVaR-based RWAs.

o Operational risk RWAs decreased by £0.9 billion following the annual recalculation in Q1 2021.

 

 

 



 

Risk and capital management

Capital, liquidity and funding risk continued

Credit risk exposure at default (EAD) and risk-weighted assets (RWAs)

The table below analyses credit risk EADs and RWAs by on and off balance sheet.

 






International Banking & Markets






Retail

Private

Commercial

RBS

NatWest

Ulster

Central items



Banking

Banking

Banking

International

Markets

Bank RoI

& other

Total

31 March 2021

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

EAD

On balance sheet

265.8

25.2

153.9

37.0

31.3

26.7

1.1

541.0

Off balance sheet

26.9

0.3

28.5

4.4

4.9

2.1

0.1

67.2

Total

292.7

25.5

182.4

41.4

36.2

28.8

1.2

608.2











RWAs

On balance sheet

25.6

9.6

49.5

5.4

3.8

9.2

1.6

104.7

Off balance sheet

2.3

0.2

13.8

1.2

1.9

1.0

-

20.4

Total

27.9

9.8

63.3

6.6

5.7

10.2

1.6

125.1

31 December 2020









EAD

On balance sheet

254.7

23.7

151.4

34.0

33.4

27.4

0.9

525.5

Off balance sheet

28.3

0.3

29.3

5.1

5.5

2.2

0.1

70.8

Total

283.0

24.0

180.7

39.1

38.9

29.6

1.0

596.3











RWAs

On balance sheet

26.7

9.4

52.5

5.1

4.1

9.6

1.4

108.8

Off balance sheet

2.5

0.2

13.8

1.4

2.1

1.1

-

21.1

Total

29.2

9.6

66.3

6.5

6.2

10.7

1.4

129.9

31 March 2020









EAD

On balance sheet

225.3

20.3

140.3

32.9

36.9

27.0

0.5

483.2

Off balance sheet

29.1

0.3

25.4

4.0

7.2

2.1

0.5

68.6

Total

254.4

20.6

165.7

36.9

44.1

29.1

1.0

551.8











RWAs

On balance sheet

27.6

8.8

56.6

4.6

7.2

10.5

1.2

116.5

Off balance sheet

3.0

0.2

11.5

1.2

2.7

1.1

0.2

19.9

Total

30.6

9.0

68.1

5.8

9.9

11.6

1.4

136.4

 

Liquidity portfolio

The table below shows the liquidity portfolio by product, with primary liquidity aligned to internal stressed outflow coverage and regulatory liquidity coverage ratio (LCR) categorisation. Secondary liquidity comprises assets eligible for discount at central banks, which do not form part of the liquid asset portfolio for LCR or internal stressed outflow coverage purposes.

 


Liquidity value


31 March 2021


30 December 2020


31 March 2020


NatWest


NatWest


NatWest


Group (1)


Group (1)


Group (1)


£m


£m


£m

Cash and balances at central banks

137,410


115,820


73,772

  AAA to AA- rated governments

29,406


50,901


55,879

  A+ and lower rated governments

7


79


1,362

  Government guaranteed issuers, public sector entities and






  government sponsored entities

250


272


225

  International organisations and multilateral development banks

2,825


3,140


2,431

LCR level 1 bonds

32,488


54,392


59,897

LCR level 1 assets

169,898


170,212


133,669

LCR level 2 assets

114


124


-

Non-LCR eligible assets

-


-


82

Primary liquidity

170,012


170,336


133,751

Secondary liquidity (2)

92,665


91,985


67,668

Total liquidity value

262,677


262,321


201,419

 

Notes:

(1)

NatWest Group includes the UK Domestic Liquidity Sub-Group (NWB Plc, RBS plc, Coutts & Co and Ulster Bank Limited), NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include The Royal Bank of Scotland International Limited, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules.

(2)

(3)

Comprises assets eligible for discounting at the Bank of England and other central banks.

Following a change in methodology in our internal stressed outflow coverage metric, cash placed at Central Bank of Ireland within UBI DAC is now reported in the liquidity portfolio.




 

Condensed consolidated income statement for the period ended 31 March 2021   (unaudited)

 



Quarter ended





31 March

31 December

31 March





2021

2020

2020





£m 

£m 

£m 

Interest receivable




2,349

2,369

2,683

Interest payable




(418)

(398)

(741)

Net interest income




1,931

1,971

1,942

Fees and commissions receivable




647

653

748

Fees and commissions payable




(141)

(131)

(175)

Income from trading activities




160

71

592

Other operating income (1)




62

(29)

55

Non-interest income




728

564

1,220

Total income




2,659

2,535

3,162

Staff costs




(985)

(986)

(992)

Premises and equipment




(248)

(321)

(258)

Other administrative expenses




(377)

(764)

(398)

Depreciation and amortisation




(205)

(270)

(193)

Operating expenses




(1,815)

(2,341)

(1,841)

Profit before impairment releases/(losses)




844

194

1,321

Impairment releases/(losses)




102

(130)

(802)

Operating profit before tax




946

64

519

Tax charge




(233)

(84)

(188)

Profit/(loss) for the period




713

(20)

331








Attributable to:







Ordinary shareholders




620

(109)

288

Preference shareholders




5

5

8

Paid-in equity holders




87

83

97

Non-controlling interests




1

1

(62)








Earnings per ordinary share




5.1p

(0.9)p

2.4p

Earnings per ordinary share - fully diluted




5.1p

(0.9)p

2.4p

 

Note:

(1)  31 March 2021 includes £118 million loss on redemption of own debt.



 

Condensed consolidated statement of comprehensive income for the period ended 31 March 2021 (unaudited)

 




Quarter ended





31 March

31 December

31 March





2021

2020

2020





£m

£m

£m

Profit/(loss) for the period




713

(20)

331

Items that do not qualify for reclassification







Remeasurement of retirement benefit schemes (1)




(508)

(50)

(22)

(Loss)/profit on fair value of credit in financial liabilities







  designated as at FVTPL due to own credit risk




(7)

(72)

188

FVOCI financial assets




1

(21)

(253)

Tax (1)




137

29

-





(377)

(114)

(87)

Items that do qualify for reclassification







FVOCI financial assets




(118)

81

(143)

Cash flow hedges




(358)

(93)

312

Currency translation




(343)

(149)

358

Tax




113

(4)

(53)





(706)

(165)

474

Other comprehensive (loss)/income after tax




(1,083)

(279)

387

Total comprehensive (loss)/income for the period




(370)

(299)

718








Attributable to:







Ordinary shareholders




(463)

(389)

662

Preference shareholders




5

5

8

Paid-in equity holders




87

83

97

Non-controlling interests




1

2

(49)





(370)

(299)

718

 

Note:

(1)  In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI), at 190.5p per share. This triggered NatWest Group to contribute £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million.



 

Condensed consolidated balance sheet as at 31 March 2021 (unaudited)


31 March

31 December

31 March

2021

2020

2020


£m

£m 

£m 

Assets




Cash and balances at central banks*

140,347

124,489

81,085

Trading assets

65,558

68,990

81,843

Derivatives

122,955

166,523

208,734

Settlement balances

8,013

2,297

9,840

Loans to banks - amortised cost*

7,239

6,955

9,306

Loans to customers - amortised cost

358,728

360,544

351,328

Other financial assets

52,323

55,148

60,822

Intangible assets

6,666

6,655

6,619

Other assets

7,947

7,890

8,067

Total assets

769,776

799,491

817,644




Liabilities




Bank deposits

18,610

20,606

26,733

Customer deposits

453,308

431,739

384,800

Settlement balances

8,234

5,545

8,905

Trading liabilities

70,508

72,256

80,767

Derivatives

116,015

160,705

204,477

Other financial liabilities

43,743

45,811

47,870

Subordinated liabilities

8,078

9,962

10,898

Notes in circulation

2,705

2,655

2,009

Other liabilities

5,926

6,388

7,062

Total liabilities

727,127

755,667

773,521




Equity




Ordinary shareholders' interests

36,792

38,367

39,609

Other owners' interests

5,892

5,493

4,554

Owners' equity

42,684

43,860

44,163

Non-controlling interests

(35)

(36)

(40)

Total equity

42,649

43,824

44,123

Total liabilities and equity

769,776

799,491

817,644

 

*31 March 2020 has been restated for the accounting policy change for balances held with central banks. Refer to Accounting policy changes effective 1 January 2020 on page 264 in the NatWest Group plc 2020 Annual Report and Accounts for further details.



 

Condensed consolidated statement of changes in equity for the period ended 31 March 2021 (unaudited)

 


Share







capital and




Total

Non



statutory

Paid-in

Retained

Other

owners'

controlling

Total


reserves (1)

equity

earnings

reserves*

equity

 interests

equity


£m

£m

£m

£m

£m

£m

£m

At 1 January 2021

13,216

4,999

12,567

13,078

43,860

(36)

43,824

Profit attributable to ordinary shareholders








  and other equity owners  

-

-

712

-

712

1

713

Other comprehensive income








  - Realised gains in period








  on FVOCI equity shares

-

-

(3)

3

-

-

-

  - Remeasurement of retirement








  benefit schemes (2)

-

-

(508)

-

(508)

-

(508)

  - Changes in fair value of credit in financial








  liabilities at FVTPL

-

-

(7)

-

(7)

-

(7)

  - Other amounts recognised in equity

-

-

-

(799)

(799)

-

(799)

  - Amount transferred from equity to earnings

-

-

-

(19)

(19)

-

(19)

  - Tax

-

-

139

111

250

-

250

Preference share and paid-in equity








  dividends paid

-

-

(92)

-

(92)

-

(92)

Shares repurchased during the year (3)

-

-

(748)

-

(748)

-

(748)

Shares and securities issued during the year (4)

87

399

-

-

486

-

486

Share-based payments

-

-

(67)

-

(67)

-

(67)

Movement in own shares held (3)

(384)

-

-

-

(384)

-

(384)

At 31 March 2021

12,919

5,398

11,993

12,374

42,684

(35)

42,649















31 March








2021

Attributable to:





£m

Ordinary shareholders







36,792

Preference shareholders







494

Paid-in equity holders







5,398

Non-controlling interests







(35)








42,649

*Other reserves consists of:







Merger reserve







10,881

FVOCI reserve







271

Cash flow hedging reserve







(38)

Foreign exchange reserve







1,260








12,374

 

Notes:

(1)  Share capital and statutory reserves includes share premium, capital redemption reserve and own shares held.

(2)  The purchase of ordinary shares triggered NatWest Group to contribute £500 million to its main pension scheme in line with the memorandum of understanding announced on 17 April 2018. After tax relief, this contribution reduced total equity by £365 million.

(3)  In March 2021, there was an agreement with HM Treasury to buy 591 million ordinary shares in the Company from UK Government Investments Ltd (UKGI), at 190.5p per share for the total consideration of £1.13 billion. NatWest Group cancelled 391 million of the purchased ordinary shares, amounting to £744 million excluding fees, and held the remaining 200 million in own shares held, amounting to £381 million excluding fees. The nominal value of the Share cancellation has been transferred to the capital redemption reserve.

(4)  AT1 capital notes, classified as paid-in equity, totalling £400 million less fees were issued in March 2021.

 



 


Notes

1. Basis of preparation

The condensed consolidated financial statements should be read in conjunction with NatWest Group plc 2020 Annual Report and Accounts which were prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006.

 

Going concern

Having reviewed NatWest Group's forecasts, projections, the potential impact of COVID-19, and other relevant evidence, the directors have a reasonable expectation that NatWest Group will continue in operational existence for a period of not less than twelve months. Accordingly, the results for the period ended 31 March 2021 have been prepared on a going concern basis.

 

2. Accounting policies

NatWest Group's principal accounting policies are as set out on pages 264 to 268 of the NatWest Group plc 2020 Annual Report and Accounts. From 1 January 2021, the accounting policies have been updated to reflect the adoption of amendments to IFRS 16 (Leases) covering COVID-19 Related Rent Concessions. The effect of the amendment on NatWest Group's accounts is immaterial.

 

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of NatWest Group's financial condition are those relating to deferred tax, fair value of financial instruments, loan impairment provisions, goodwill and provisions for liabilities and charges. These critical accounting policies and judgements are referenced on page 268 of the NatWest Group plc 2020 Annual Report and Accounts. Estimation uncertainty has been affected by the COVID-19 pandemic. Management's consideration of this source of uncertainty is outlined in the relevant sections of NatWest Group plc 2020 Annual Report and Accounts, including the ECL estimate for the period in the Risk and capital management section contained in the NatWest Group plc 2020 Annual Report and Accounts.

 

It was announced in the UK Government's Budget on 3 March 2021 that the main UK corporation tax rate will increase from 19% to 25% from 1 April 2023. This legislative change has not yet been substantively enacted. The UK Government has also announced a review of the current bank surcharge rate of 8% to ensure that the combined rate of corporation tax, applicable to banking entities, does not increase substantially from its current level when the proposed change to the main UK corporation tax rate comes into effect. NatWest Group has not made an estimate of the impact of the post balance sheet date change in the main UK corporation tax rate on the basis that it is uncertain what the combined rate of corporation tax, applicable to banking entities from 1 April 2023, will be until the UK Government has completed its review of the bank surcharge.

 

Information used for significant estimates

The COVID-19 pandemic has continued to cause significant economic and social disruption. Key financial estimates are based on management's latest five-year revenue and cost forecasts.  Measurement of goodwill, deferred tax and expected credit losses are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods. (Refer to the NatWest Group plc Risk factors in the 2020 Annual Report and Accounts).



 

Notes

3. Litigation and regulatory matters

NatWest Group plc's 2020 Annual Report and Accounts, issued on 19 February 2021, included disclosures about NatWest Group's litigation and regulatory matters in Note 26. Set out below are the material developments in those matters since publication of the 2020 Annual Report and Accounts.

 

Litigation

London Interbank Offered Rate (LIBOR) and other rates litigation

NWM Plc is a defendant in a class action relating to alleged manipulation of the Singapore Interbank Offered Rate and Singapore Swap Offer Rate, pending in the United States District Court for the Southern District of New York (SDNY). In July 2019, the SDNY dismissed the complaint for lack of subject matter jurisdiction, but on 17 March 2021, that decision was reversed by the United States Court of Appeals for the Second Circuit. The case will now return to the SDNY for further litigation.

 

Government securities antitrust litigation

NWMSI and certain other US broker-dealers are defendants in a consolidated antitrust class action pending in the SDNY on behalf of persons who transacted in US Treasury securities or derivatives based on such instruments, including futures and options. The complaint was dismissed on 31 March 2021, subject to the right of the plaintiffs to replead their case.

 

EUA trading litigation

Following judgment against NWM Plc in March 2020 in the claim by ten companies (all in liquidation) and their respective liquidators, the High Court in October 2020, quantified damages against NWM Plc at £45 million plus interest and costs and permitted NWM Plc to appeal its judgment to the Court of Appeal. The appeal hearing took place in March 2021 and judgment is awaited.

 

US Anti-Terrorism Act litigation

NWB Plc is defending lawsuits filed in the United States District Court for the Eastern District of New York by a number of US nationals (or their estates, survivors, or heirs) who were victims of terrorist attacks in Israel. In October 2017, the trial court dismissed claims against NWB Plc with respect to two of the 18 terrorist attacks at issue. In March 2019, the trial court granted summary judgment in favour of NWB Plc in respect of the remaining claims. On 7 April 2021, the United States Court of Appeals for the Second Circuit affirmed the trial court's judgment in favour of NWB Plc, subject to the right of the plaintiffs to seek review by the United States Supreme Court.

 

Regulatory matters

FCA investigation into NatWest Group's compliance with the Money Laundering Regulations 2007

In July 2017, the FCA notified NatWest Group that it was undertaking an investigation into NatWest Group's compliance with the UK Money Laundering Regulations 2007 ("MLR 2007") in relation to certain money service businesses and related parties. NatWest Group is co-operating with the investigation, including responding to information requests from the FCA.

 

On 15 March 2021, the FCA notified NatWest Group that it had commenced criminal proceedings against NWB Plc for offences under regulation 45(1) of the MLR 2007 for alleged failures to comply with regulations 8(1), 8(3) and 14(1) of the MLR 2007 between 11 November 2011 and 19 October 2016, arising from the handling of the accounts of a UK incorporated customer. NWB Plc will be required to attend an initial hearing at Westminster Magistrates' Court on 26 May 2021. Material adverse collateral consequences, in addition to further substantial costs and the recognition of provisions, may occur as a result of these criminal proceedings.

 

Review and investigation of treatment of tracker mortgage customers in Ulster Bank Ireland DAC

In April 2016, the CBI commenced an investigation into suspected breaches by UBI DAC of specified provisions of the Consumer Protection Code 2006 in its treatment of certain tracker mortgage customers. On 23 March 2021, UBI DAC agreed with the CBI to pay a fine of €37.8 million for breaches of its regulatory obligations in respect of its treatment of tracker mortgage customers. The fine was substantially covered by existing provisions.

 

4. Post balance sheet events

Other than as disclosed there have been no other significant events between 31 March 2021 and the date of approval of these accounts which would require a change to or additional disclosure in the condensed consolidated financial statements.




Additional information

Presentation of information

'Parent company' refers to NatWest Group plc and 'NatWest Group' refers to NatWest Group plc and its subsidiary and associated undertakings. The term 'NWH Group' refers to NatWest Holdings Limited ('NWH') and its subsidiary and associated undertakings. The term 'NWM Group' refers to NatWest Markets Plc ('NWM Plc') and its subsidiary and associated undertakings. The term 'NWM N.V.' refers to NatWest Markets N.V. The term 'NWMSI' refers to NatWest Markets Securities, Inc. The term 'RBS plc' refers to The Royal Bank of Scotland plc. The term 'NWB Plc' refers to National Westminster Bank Plc. The term 'UBI DAC' refers to Ulster Bank Ireland DAC. The term 'RBSI Limited' refers to The Royal Bank of Scotland International Limited.

 

NatWest Group publishes its financial statements in pounds sterling ('£' or 'sterling'). The abbreviations '£m' and '£bn' represent millions and thousands of millions of pounds sterling, respectively, and references to 'pence' represent pence in the United Kingdom ('UK'). Reference to 'dollars' or '$' are to United States of America ('US') dollars. The abbreviations '$m' and '$bn' represent millions and thousands of millions of dollars, respectively, and references to 'cents' represent cents in the US. The abbreviation '€' represents the 'euro', and the abbreviations '€m' and '€bn' represent millions and thousands of millions of euros, respectively, and references to 'cents' represent cents in the European Union ('EU').

 

To aid readability, this document retains references to EU legislative and regulatory provisions in effect in the UK before 1 January 2021 that have now been implemented in UK domestic law. These references should be read and construed as including references to the applicable UK implementation measures with effect from 1 January 2021.

 

Statutory results

Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2019 have been filed with the Registrar of Companies and those for the year ended 31 December 2020 will be filed with the Registrar of Companies following the Annual General Meeting. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.

 

MAR - Inside Information

This announcement contains information that qualified or may have qualified as inside information for NatWest Group plc, for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR) as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018. This announcement is made by Alexander Holcroft, Head of Investor Relations for NatWest Group plc.

 

Contacts

Analyst enquiries:

Alexander Holcroft, Investor Relations

+44 (0) 20 7672 1758

 

Media enquiries:

NatWest Group Press Office

+44 (0) 131 523 4205

 


Management presentation

Webcast and dial in details

Date:

29 April 2021

www.natwestgroup.com/results

 

 

Time:

9am UK time

International: +44 (0) 203 057 6566

Conference ID:

8242757

UK Free Call: 0800 279 5995

US Local Dial-In, New York: +1 646 741 2115

 

 

Available on www.natwestgroup.com/results

· Q1 2021 Interim Management Statement and slides.

· A financial supplement containing income statement, balance sheet and segment performance for the quarter ended 31 March 2021.

· NatWest Group and NWH Group Pillar 3 supplements.

 



 

Forward looking statements

This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, such as statements that include, without limitation, the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. These statements concern or may affect future matters, such as NatWest Group's future economic results, business plans and strategies. In particular, this document may include forward-looking statements relating to NatWest Group plc in respect of, but not limited to: the impact of the COVID-19 pandemic, its regulatory capital position and related requirements, its financial position, profitability and financial performance (including financial, capital, cost savings and operational targets), the implementation of its Purpose-led strategy and the refocusing of its NatWest Markets franchise, its ESG and climate related targets, its access to adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, its exposure to third party risks, its ongoing compliance with the UK ring-fencing regime and ensuring operational continuity in resolution, its impairment losses and credit exposures under certain specified scenarios, substantial regulation and oversight, ongoing legal, regulatory and governmental actions and investigations, the transition of LIBOR and IBOR rates to alternative risk free rates and NatWest Group's exposure to economic and political risks (including with respect to terms surrounding Brexit and climate change), operational risk, conduct risk, cyber and IT risk, key person risk and credit rating risk.  Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, the impact of the COVID-19 pandemic, future acquisitions, the outcome of legal, regulatory and governmental actions and investigations, the level and extent of future impairments and write-downs (including with respect to goodwill), legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations, general economic and political conditions and the impact of climate-related risks and the transitioning to a low carbon economy. These and other factors, risks and uncertainties that may impact any forward-looking statement or NatWest Group plc's actual results are discussed in NatWest Group plc's UK 2020 Annual Report and Accounts (ARA), NatWest Group plc's Interim Results for Q1 2021 and NatWest Group plc's filings with the US Securities and Exchange Commission, including, but not limited to, NatWest Group plc's most recent Annual Report on Form 20-F and Reports on Form 6-K. The forward-looking statements contained in this document speak only as of the date of this document and NatWest Group plc does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

Legal Entity Identifier: 2138005O9XJIJN4JPN90



 


 

 

 

 

 

 

 

Appendix

 

 

Non-IFRS financial   measures

 

 

 




 

Appendix - Non-IFRS financial measures

As described in the Accounting policies on page 29, NatWest Group prepares its financial statements in accordance with generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. The non-IFRS measures provide users of the financial statements with a consistent basis for comparing business performance between financial periods and information on elements of performance that are one-off in nature. The non-IFRS measures also include the calculation of metrics that are used throughout the banking industry. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include:

 

Non-IFRS financial measures

Measure

Basis of preparation

Additional analysis or reconciliation

NatWest Group return on tangible equity

Annualised profit or loss for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is average total equity excluding non-controlling interests (NCI) less average intangible assets and average other owners' equity.

Table 1

Segmental return on equity

Segmental operating profit or loss adjusted for preference share dividends and tax divided by average notional tangible equity, allocated at an operating segment specific rate, of the period average segmental risk-weighted assets incorporating the effect of capital deductions (RWAes).

Table 1

Operating expenses analysis - management view

The management analysis of operating expenses shows strategic costs and litigation

and conduct costs in separate lines. Depreciation and amortisation, impairment of

other intangibles and other administrative expenses attributable to these costs are

included in strategic costs and litigation and conduct costs lines for management

analysis. These amounts are included in staff, premises and equipment and other

administrative expenses in the statutory analysis.

Table 2

Cost:income ratio

Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation.

Table 3

Commentary - adjusted periodically for specific items

NatWest Group and segmental business performance commentary have been adjusted for the impact of specific items such as notable items, operating lease depreciation, strategic costs and litigation and conduct costs.

 

Notable items - page 5 , Operating lease depreciation,

Strategic costs and litigation and conduct costs - pages 12 to 14

Net lending in the retail and commercial business

Comprises customer loans in the Retail Banking, Commercial Banking, Private Banking and RBS International operating segments, excluding UK Government support schemes.

Pages 1 and 4

Bank net interest margin (NIM)

Net interest income of the banking business less NatWest Markets (NWM) element as a percentage of average interest-earning assets of the banking business less NWM element.

Table 4

 

Performance metrics based on but not defined under IFRS

Measure

Basis of preparation

Additional analysis or reconciliation

Loan:deposit ratio

Net customer loans held at amortised cost divided by total customer deposits.

Table 5

Tangible net asset value (TNAV)

Tangible equity divided by the number of ordinary shares in issue (excluding own shares held). Tangible equity is ordinary shareholders' equity less intangible assets.

Page 3

NIM

Net interest income as a percentage of average interest-earning assets.

Page 3

Funded assets

Total assets less derivatives.

Pages 12 to 14

ECL loss rate

The annualised loan impairment charge divided by gross customer loans.

Pages 12 to 14

Third party customer asset rate

Third party customer asset rate is calculated as annualised interest receivable on third-party loans to customers as a percentage of third-party loans to customers only. This excludes intragroup items, loans to banks and liquid asset portfolios, which are included for the calculation of net interest margin.

Pages 12 to 14

Third party customer funding rate

Third party customer funding rate is calculated as annualised interest payable on third-party customer deposits as a percentage of third-party customer deposits, including interest bearing and non-interest bearing customer deposits. This excludes intragroup items, bank deposits, debt securities in issue and subordinated liabilities.

Pages 12 to 14

Assets under management and administration (AUMA)

Total AUMA comprises both assets under management (AUMs) and assets under administration (AUAs) managed within the Private Banking franchise. AUMs comprise assets under management, assets under custody and investment cash relating to Private Banking customers. AUAs are managed by Private Banking on behalf of Retail Banking and RBSI and a management fee is received in respect of providing this service.

 

Page 7



 

Appendix Non-IFRS financial measures

1. Return on tangible equity

 

 



Quarter ended





31 March

31 December

31 March





2021

2020

2020

Profit/(loss) attributable to ordinary shareholders (£m)




620

(109)

288

Annualised profit/(loss) attributable to ordinary







  shareholders (£m)




2,480

(436)

1,152

Average total equity excluding NCI (£m)




43,566

43,648

44,018

Adjustment for other owners' equity and intangibles (£m)




(12,333)

(11,895)

(11,911)

Adjusted total tangible equity (£m)




31,233

31,753

32,107

Return on tangible equity (%)




7.9%

(1.4%)

3.6%

 












International Banking & Markets



Retail

Private

Commercial

RBS

NatWest

Ulster


Banking

Banking

Banking

International

Markets

Bank RoI

Quarter ended 31 March 2021

£m

£m

£m

£m

£m

£m

Operating profit/(loss) (£m)

435

64

475

68

(80)

11

Preference share cost allocation (£m)

(20)

(5)

(38)

(5)

(16)

-

Adjustment for tax (£m)

(116)

(17)

(122)

(11)

27

-

Adjusted attributable profit/(loss) (£m)

299

42

315

52

(69)

11

Annualised adjusted attributable profit/(loss) (£m)

1,196

168

1,260

208

(276)

44

Average RWAe (£bn)

35.8

11.0

73.6

7.4

29.2

11.4

Equity factor

14.5%

12.5%

11.5%

16.0%

15.0%

15.5%

RWAe applying equity factor (£bn)

5.2

1.4

8.5

1.2

4.4

1.8

Return on equity

23.0%

12.4%

14.9%

17.5%

(6.3%)

2.5%








Quarter ended 31 December 2020







Operating profit/(loss) (£m)

91

67

285

(13)

(230)

18

Preference share cost allocation (£m)

(22)

(5)

(38)

(5)

(17)

-

Adjustment for tax (£m)

(19)

(17)

(69)

3

69

-

Adjusted attributable profit/(loss)(£m)

50

45

178

(15)

(178)

18

Annualised adjusted attributable profit/(loss) (£m)

200

180

712

(60)

(712)

72

Average RWAe (£bn)

36.1

10.7

75.9

7.1

31.5

11.9

Equity factor

14.5%

12.5%

11.5%

16.0%

15.0%

15.5%

RWAe applying equity factor (£bn)

5.2

1.3

8.7

1.1

4.7

1.8

Return on equity

3.8%

13.3%

8.1%

(5.5%)

(15.0%)

3.9%








Quarter ended 31 March 2020







Operating profit/(loss) (£m)

324

49

(37)

68

206

(21)

Preference share cost allocation (£m)

(22)

(6)

(38)

(5)

(17)

-

Adjustment for tax (£m)

(85)

(12)

21

(9)

(53)

-

Adjusted attributable profit/(loss) (£m)

217

31

(54)

54

136

(21)

Annualised adjusted attributable profit/(loss) (£m)

868

124

(216)

216

544

(84)

Average RWAe (£bn)

38.7

10.2

74.1

7.0

41.9

12.8

Equity factor

14.5%

12.5%

11.5%

16.0%

15.0%

15.5%

RWAe applying equity factor (£bn)

5.6

1.3

8.5

1.1

6.3

2.0

Return on equity

15.5%

9.8%

(2.5%)

19.4%

8.7%

(4.2%)










 

Appendix Non-IFRS financial measures

2. Operating expenses analysis

Statutory analysis  (1,2)










Quarter ended





31 March

31 December

31 March





2021

2020

2020

Operating expenses




£m 

£m 

£m 

Staff costs




985

986

992

Premises and equipment




248

321

258

Other administrative expenses




377

764

398

Depreciation and amortisation




205

270

193

Total operating expenses




1,815

2,341

1,841

 

Non-statutory analysis






Quarter ended


31 March 2021



Litigation





and


Statutory


Strategic

conduct

Other

operating

Operating expenses

costs

costs

expenses

expenses

Staff costs

111

-

874

985

Premises and equipment

16

-

232

248

Other administrative expenses

23

16

338

377

Depreciation and amortisation

10

-

195

205

Total

160

16

1,639

1,815







Quarter ended


31 December 2020



Litigation





and


Statutory


Strategic

conduct

Other

operating

Operating expenses

costs

costs

expenses

expenses

Staff costs

147

-

839

986

Premises and equipment

63

-

258

321

Other administrative expenses

54

194

516

764

Depreciation and amortisation

62

-

208

270

Total

326

194

1,821

2,341







Quarter ended


31 March 2020



Litigation





and


Statutory


Strategic

conduct

Other

operating

Operating expenses

costs

costs

expenses

expenses

Staff costs

73

-

919

992

Premises and equipment

13

-

245

258

Other administrative expenses

43

(4)

359

398

Depreciation and amortisation

2

-

191

193

Total

131

(4)

1,714

1,841

 

Notes:

(1)  On a statutory, or GAAP, basis strategic costs are included within staff costs, premises and equipment, depreciation and amortisation, impairment of other  intangible assets and other administrative expenses. Strategic costs relate to restructuring provisions, related costs and projects that are transformational in nature.

(2)  On a statutory, or GAAP, basis litigation and conduct costs are included within other administrative expenses.



 

Appendix Non-IFRS performance measures

3. Cost:income ratio














International Banking & Markets


Central

Total


Retail

Private

Commercial

RBS

NatWest

Ulster

items

NatWest


Banking

Banking

Banking

International

Markets

Bank RoI

& other

Group

Quarter ended 31 March 2021

£m

£m

£m

£m

£m

£m

£m

£m

Operating expenses

(587)

(121)

(583)

(57)

(275)

(125)

(67)

(1,815)

Operating lease depreciation

-

-

35

-

-

-

-

35

Adjusted operating expenses

(587)

(121)

(548)

(57)

(275)

(125)

(67)

(1,780)

Total income

1,056

185

941

123

189

124

41

2,659

Operating lease depreciation

-

-

(35)

-

-

-

-

(35)

Adjusted total income

1,056

185

906

123

189

124

41

2,624

Cost:income ratio

55.6%

65.4%

60.5%

46.3%

145.5%

100.8%

nm

67.8%










Quarter ended 31 December 2020









Operating expenses

(818)

(91)

(656)

(112)

(301)

(114)

(249)

(2,341)

Operating lease depreciation

-

-

35

-

-

-

-

35

Adjusted operating expenses

(818)

(91)

(621)

(112)

(301)

(114)

(249)

(2,306)

Total income

974

184

951

126

73

131

96

2,535

Operating lease depreciation

-

-

(35)

-

-

-

-

(35)

Adjusted total income

974

184

916

126

73

131

96

2,500

Cost:income ratio

84.0%

49.5%

67.8%

88.9%

nm

87.0%

nm

92.2%










Quarter ended 31 March 2020









Operating expenses

(529)

(123)

(610)

(61)

(342)

(123)

(53)

(1,841)

Operating lease depreciation

-

-

36

-

-

-

-

36

Adjusted operating expenses

(529)

(123)

(574)

(61)

(342)

(123)

(53)

(1,805)

Total income

1,150

201

1,008

144

543

129

(13)

3,162

Operating lease depreciation

-

-

(36)

-

-

-

-

(36)

Adjusted total income

1,150

201

972

144

543

129

(13)

3,126

Cost:income ratio

46.0%

61.2%

59.1%

42.4%

63.0%

95.3%

nm

57.7%

 

4. Net interest margin




Quarter ended or as at





31 March

31 December

31 March





2021

2020

2020





£m

£m

£m

NatWest Group net interest income




1,931

1,971

1,942

Less: NWM net interest income




7

2

40

Net interest income excluding NWM




1,938

1,973

1,982

Annualised net interest income




7,831

7,820

7,811

Annualised net interest income excluding NWM




7,860

7,828

7,972

Average interest earning assets (IEA)




512,237

509,598

458,514

NWM average IEA




32,429

36,515

36,113

Bank average IEA excluding NWM




479,808

473,083

422,401








Net interest margin




1.53%

1.54%

1.70%

Bank net interest margin (NatWest Group NIM excluding NWM)




1.64%

1.66%

1.89%

 

5. Loan:deposit ratio


As at


31 March

31 December

31 March


2021

2020

2020


£m

£m

£m

Loans to customers - amortised cost

358,728

360,544

351,328

Customer deposits

453,308

431,739

384,800

Loan:deposit ratio (%)

79%

84%

91%

 

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